<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 July 31, 2000
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: 1-7775
FLUOR CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-0740960
--------------------------------------------------------------------------------
(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 August 31, 2000 there were 75,668,096 shares of common stock outstanding.
<PAGE> 2
FLUOR CORPORATION
FORM 10-Q
JULY 31, 2000
TABLE OF CONTENTS PAGE
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Part I: Financial Information
Condensed Consolidated Statement of Earnings for the Three Months
Ended July 31, 2000 and 1999 ..................................... 2
Condensed Consolidated Statement of Earnings for the Nine Months
Ended July 31, 2000 and 1999 ..................................... 3
Condensed Consolidated Balance Sheet at July 31, 2000 and
October 31, 1999.................................................. 4
Condensed Consolidated Statement of Cash Flows for the Nine
Months Ended July 31, 2000 and 1999 .............................. 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 .................................. 22
Part II: Other Information ................................................ 23
Signatures ................................................................ 24
1
<PAGE> 3
PART I: FINANCIAL INFORMATION
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended July 31, 2000 and 1999
UNAUDITED
<TABLE>
<CAPTION>
$ in thousands, except per share amounts 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 2,902,656 $ 3,069,444
COSTS AND EXPENSES
Cost of revenues 2,830,083 2,967,562
Corporate administrative and general expense 17,377 20,724
Interest expense 15,988 12,439
Interest income (8,079) (4,818)
----------- -----------
Total Costs and Expenses 2,855,369 2,995,907
----------- -----------
EARNINGS BEFORE INCOME TAXES 47,287 73,537
INCOME TAX EXPENSE 13,949 23,385
----------- -----------
NET EARNINGS $ 33,338 $ 50,152
=========== ===========
EARNINGS PER SHARE
BASIC $ 0.44 $ 0.67
=========== ===========
DILUTED $ 0.44 $ 0.66
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.25 $ 0.20
=========== ===========
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 74,964 75,200
=========== ===========
DILUTED EARNINGS PER SHARE 76,097 75,847
=========== ===========
</TABLE>
See Accompanying Notes.
2
<PAGE> 4
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Nine Months Ended July 31, 2000 and 1999
UNAUDITED
<TABLE>
<CAPTION>
$ in thousands, except per share amounts 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 8,458,938 $ 9,544,816
COSTS AND EXPENSES
Cost of revenues 8,207,817 9,259,978
Special provision (17,919) 136,500
Corporate administrative and general expense 45,278 40,504
Interest expense 43,910 38,451
Interest income (14,512) (14,530)
----------- -----------
Total Costs and Expenses 8,264,574 9,460,903
----------- -----------
EARNINGS BEFORE INCOME TAXES 194,364 83,913
INCOME TAX EXPENSE 57,732 55,575
----------- -----------
NET EARNINGS $ 136,632 $ 28,338
=========== ===========
EARNINGS PER SHARE
BASIC $ 1.81 $ 0.38
=========== ===========
DILUTED $ 1.79 $ 0.37
=========== ===========
DIVIDENDS PER COMMON SHARE $ 0.75 $ 0.60
=========== ===========
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 75,340 75,158
=========== ===========
DILUTED EARNINGS PER SHARE 76,345 75,884
=========== ===========
</TABLE>
See Accompanying Notes.
3
<PAGE> 5
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
July 31, 2000 and October 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
July 31, October 31,
$ in thousands 2000 1999*
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 105,638 $ 209,614
Accounts and notes receivable 826,664 850,557
Contract work in progress 449,486 416,285
Deferred taxes 126,142 105,502
Inventory and other current assets 315,240 328,213
---------- ----------
Total current assets 1,823,170 1,910,171
---------- ----------
Property, plant and equipment (net of accumulated
depreciation, depletion and amortization of
$1,371,957 and $1,245,644, respectively) 2,314,773 2,222,953
Investments and goodwill, net 238,454 283,936
Other 500,186 469,057
---------- ----------
$4,876,583 $4,886,117
========== ==========
</TABLE>
(Continued On Next Page)
* Amounts at October 31, 1999 have been derived from audited financial
statements.
4
<PAGE> 6
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
July 31, 2000 and October 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
July 31, October 31,
$ in thousands 2000 1999*
------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 709,824 $ 793,465
Short-term debt 425,529 247,911
Advance billings on contracts 443,861 565,373
Accrued salaries, wages and benefit plans 274,816 321,148
Other accrued liabilities 240,789 276,413
----------- -----------
Total current liabilities 2,094,819 2,204,310
----------- -----------
Long-term debt due after one year 317,569 317,555
Deferred taxes 182,263 162,210
Other noncurrent liabilities 636,003 620,670
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 $0.625
par value; issued and outstanding - 75,669,076
shares and 76,034,296 shares, respectively 47,293 47,521
Additional capital 210,144 217,844
Retained earnings 1,454,924 1,375,338
Unamortized executive stock plan expense (26,062) (21,579)
Accumulated other comprehensive income (40,370) (37,752)
----------- -----------
Total shareholders' equity 1,645,929 1,581,372
----------- -----------
$ 4,876,583 $ 4,886,117
=========== ===========
</TABLE>
See Accompanying Notes.
* Amounts at October 31, 1999 have been derived from audited financial
statements.
5
<PAGE> 7
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 2000 and 1999
UNAUDITED
<TABLE>
<CAPTION>
$ in thousands 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 136,632 $ 28,338
Adjustments to reconcile net earnings to cash provided
by operating activities:
Depreciation, depletion and amortization 229,365 236,712
Deferred taxes 4,560 13,497
Special provision, net of cash paid (33,719) 118,261
Asset write-off 17,762 --
Changes in operating assets and liabilities,
excluding effects of business acquisitions/
dispositions (251,364) (47,478)
Other, net (12,887) (44,815)
--------- ---------
Cash provided by operating activities 90,349 304,515
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (385,653) (362,437)
Proceeds from sale of subsidiary -- 36,300
Proceeds from sale of property, plant and equipment 70,956 92,295
Investments, net 27,039 (13,441)
Other, net (11,755) (17,360)
--------- ---------
Cash utilized by investing activities (299,413) (264,643)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 171,809 (185,156)
Proceeds from issuance of note payable to affiliate 8,959 50,479
Proceeds from issuance of long-term debt -- 17,550
Cash dividends paid (57,046) (45,484)
Stock options exercised 5,829 4,161
Purchases of common stock (23,003) --
Other, net (1,460) (2,080)
--------- ---------
Cash provided (utilized) by financing activities 105,088 (160,530)
--------- ---------
Decrease in cash and cash equivalents (103,976) (120,658)
Cash and cash equivalents at beginning of period 209,614 340,544
--------- ---------
Cash and cash equivalents at end of period $ 105,638 $ 219,886
========= =========
</TABLE>
See Accompanying Notes.
6
<PAGE> 8
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) 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, 1999 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 July 31, 2000 are not necessarily indicative of
results that can be expected for the 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 July 31, 2000 and its
consolidated results of operations and cash flows for the three and nine
months ended July 31, 2000 and 1999.
Certain 1999 amounts have been reclassified to conform with the 2000
presentation.
(2) Inventories comprise the following:
July 31, October 31,
$ in thousands 2000 1999
-------------------------------------------------------------------------
Equipment for sale/rental $ 75,008 $131,781
Coal 73,005 72,070
Supplies and other 56,727 44,267
-------- --------
$204,740 $248,118
======== ========
(3) Short-term debt comprises the following:
July 31, October 31,
$ in thousands 2000 1999
-------------------------------------------------------------------------
Commercial paper $273,527 $113,746
Note payable to affiliate 122,338 113,379
Notes payable to banks 27,528 15,500
Trade notes payable 2,136 5,286
-------- --------
$425,529 $247,911
======== ========
7
<PAGE> 9
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(4) 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 Nine Months Ended
July 31, July 31,
---------------------- -----------------------
$ in thousands 2000 1999 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $ 33,338 $ 50,152 $ 136,632 $ 28,338
Foreign currency translation
adjustment (3,452) (6,238) (2,618) (4,542)
-------- -------- --------- --------
Comprehensive income $ 29,886 $ 43,914 $ 134,014 $ 23,796
======== ======== ========= ========
</TABLE>
(5) Cash paid for interest was $40.8 million and $33.6 million for the nine
month periods ended July 31, 2000 and 1999, respectively. Income tax
payments, net of receipts, were $49.2 million and $46.4 million during the
nine month periods ended July 31, 2000 and 1999, respectively.
(6) The Company has a forward purchase contract for 1,850,000 shares of its
common stock. The contract matures in October 2000 and gives the Company
the ultimate choice of settlement option, either physical settlement or net
share settlement. As of July 31, 2000, the contract settlement cost per
share exceeded the current market price per share by $23.70.
If during the term of the contract, the price of the Company's stock falls
to certain levels, as defined in the contract, the holder of the contract
has the right to require the Company to register the shares or, if the
price declines beyond a stated level, to settle the contract at the
Company's choice of settlement option.
8
<PAGE> 10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(7) In March 1999, the Company announced a new strategic direction, including a
reorganization of the operating units and administrative functions of its
engineering and construction segment. In connection with this
reorganization, the Company recorded in the second quarter of fiscal year
1999 a special provision of $136.5 million pretax to cover direct and other
reorganization related costs, primarily for personnel, facilities and asset
impairment adjustments. In the second quarter of 2000, $17.9 million of the
special provision was reversed into earnings as a result of the Company's
decision to retain ownership and remain in its current office location in
Camberley, U.K.
To date, the Company has eliminated slightly more than 5,000 jobs with
additional separations to be completed by the end of the fiscal year. Two
offices were closed during the second quarter. These closures and the
decision to retain facilities in Camberley, bring total offices closed to
15 thus completing the office utilization initiatives under the
reorganization plan.
The following table summarizes the status of the Company's reorganization
plan as of July 31, 2000:
<TABLE>
<CAPTION>
Lease
Asset Termi-
Personnel Impair- nation
$ in millions Costs ments Costs Other Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1999 $ 25.2 $ 23.4 $ 9.7 $ 0.2 $ 58.5
Cash expenditures (10.7) -- (5.1) -- (15.8)
Non-cash activities (2.1) (5.5) -- (0.2) (7.8)
Provision reversal -- (17.9) -- -- (17.9)
------- ------- ------ ------ -------
Balance at July 31, 2000 $ 12.4 $ -- $ 4.6 $ -- $ 17.0
======= ======= ====== ====== =======
</TABLE>
The special provision liability as of July 31, 2000 is included in other
accrued liabilities. The liability for personnel costs will be
substantially utilized by year-end. The liability associated with abandoned
lease space will be amortized as an offset to lease expense over the
remaining life of the respective leases starting on the date of
abandonment.
9
<PAGE> 11
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(8) In the fourth quarter of 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131). The statement establishes new
standards for the way that business enterprises report information about
operating segments as well as the related disclosures about products and
services, geographical areas and major customers. The adoption of SFAS No.
131 did not affect the consolidated results of operations or financial
position of the Company, but it did affect the business segments that are
disclosed. Prior year disclosures have been restated to conform to the new
basis of reporting.
Operating Information by Segment - For the three months ended July 31, 2000
and 1999:
<TABLE>
<CAPTION>
Fluor Fluor
Fluor Global Massey Signature
$ in millions Daniel Services Coal Services Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
External revenues $1,866.2 $757.4 $275.1 $4.0 $2,902.7
Operating (loss) profit $ (0.4) $ 34.9 $ 39.6 $1.1 $ 75.2
1999
External revenues $2,068.2 $734.9 $266.3 $ -- $3,069.4
Operating profit $ 49.7 $ 18.3 $ 33.7 $ -- $ 101.7
</TABLE>
Reconciliation of Segment Information to Consolidated Amounts - For
the three months ended July 31, 2000 and 1999:
$ in millions 2000 1999
------------------------------------------------------------------------
Total segment operating profit $ 75.2 $ 101.7
Corporate administrative and general expense (17.4) (20.7)
Interest (expense) income, net (7.9) (7.6)
Other items, net (2.6) 0.1
------ -------
Earnings before taxes $ 47.3 $ 73.5
====== =======
10
<PAGE> 12
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(8) (continued)
Operating Information by Segment - For the nine months ended July 31, 2000
and 1999:
<TABLE>
<CAPTION>
Fluor Fluor
Fluor Global Massey Signature
$ in millions Daniel Services Coal Services Total
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
External revenues $5,444.2 $2,203.6 $797.3 $13.8 $8,458.9
Operating profit $ 82.4 $ 71.4 $101.5 $ 0.7 $ 256.0
1999
External revenues $6,598.2 $2,152.3 $794.3 $ -- $9,544.8
Operating profit $ 128.2 $ 56.4 $104.1 $ -- $ 288.7
</TABLE>
Reconciliation of Segment Information to Consolidated Amounts - For the
nine months ended July 31, 2000 and 1999:
$ in millions 2000 1999
-------------------------------------------------------------------------
Total segment operating profit $ 256.0 $ 288.7
Special provision 17.9 (136.5)
Corporate administrative and general expense (45.3) (40.5)
Interest (expense) income, net (29.4) (23.9)
Other items, net (4.8) (3.9)
------- -------
Earnings before taxes $ 194.4 $ 83.9
======= =======
(9) On June 7, 2000, the Company's Board of Directors approved a transaction
that will separate the Company into two independent entities - Fluor and
Massey Energy. This action will enable the management teams of Fluor and
Massey Energy to focus more closely on their respective businesses and will
provide each of the companies with the flexibility to grow in a way that is
best suited to its industry. The transaction will be structured as a
spin-off, resulting in the creation of two publicly held companies. At the
time of the spin-off, Fluor shareholders will retain their existing Fluor
stock, which will become Massey Energy shares, and will be issued an equal
number of shares of "New" Fluor stock through a tax-free distribution. The
"Old" Fluor's name will be changed to Massey Energy Company. The proposed
transaction, which is expected to be completed by the end of the calendar
year, is subject to shareholder approval, establishment of new capital
structures, and a favorable ruling by the Internal Revenue Service.
11
<PAGE> 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, 1999 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; gain or loss on discontinued operations; the
cumulative effect of a change in accounting principles; and certain other
miscellaneous non-operating income and expense items which are immaterial.
FORWARD-LOOKING INFORMATION
Statements regarding the Company's expectations for future performance or
results, including estimated and projected operating profits and earnings,
statements regarding industry and competitive trends, the impact of the proposed
Fluor/Massey Energy transaction resulting in the creation of two publicly-held
companies, the benefits and impacts of such a transaction and potential share
repurchases, are forward looking in nature. 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, actual results
may differ materially from expected or projected results. Factors potentially
contributing to such differences include, among others:
o Changes in global business, economic, political and social conditions;
o The Company's failure to receive anticipated new contract awards;
o Customer cancellations of, or scope adjustments to, existing contracts;
o Difficulties or delays incurred in the execution of construction contracts
resulting in cost overruns or liabilities;
o Customer delays or defaults in making payments;
o Fluctuations in the demand for, and price of, coal and other natural
resource commodities;
o Difficulties and delays incurred in the implementation of strategic
initiatives;
o Competition in the global engineering and construction industry;
o Inability to consummate the proposed transaction for any reason;
o Consummation of the proposed transaction and realization of the anticipated
results could take longer than expected;
o The Company and/or Massey Energy may fail to receive the credit rating
anticipated;
o Implementation difficulties and market factors could alter the proposed
strategies and goals of the Company and/or Massey Energy; and
o The Company and/or Massey Energy could face difficulties in locating and/or
achieving anticipated consolidation, growth, expansion and new business
initiatives and opportunities.
There is also a risk that future results may be impacted by unforeseen
impediments to the realization of revenues or other payments that have been
recognized through accruals prior to actual receipt. Failure to realize such
amounts may result in a charge against future earnings.
12
<PAGE> 14
Additional information concerning these and other factors can be found in press
releases as well as the Company's public 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
for its fiscal year ended October 31, 1999 in the Company's Preliminary Proxy
Statement on Schedule 14A that was filed with the Securities and Exchange
Commission on August 25, 2000. Such 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.
PROPOSED TRANSACTION
On June 7, 2000, the Company's Board of Directors approved a transaction that
will separate the Company into two independent entities - Fluor and Massey
Energy. This action will enable the management teams of Fluor and Massey Energy
to focus more closely on their respective businesses and will provide each of
the companies with the flexibility to grow in a way that is best suited to its
industry. The transaction will be structured as a spin-off, resulting in the
creation of two publicly held companies. At the time of the spin-off, Fluor
shareholders will retain their existing Fluor stock, which will become Massey
Energy shares, and will be issued an equal number of shares of "New" Fluor stock
through a tax-free distribution. The "Old" Fluor's name will be changed to
Massey Energy Company. The proposed transaction, which is expected to be
completed by the end of the calendar year, is subject to shareholder approval,
establishment of new capital structures, and a favorable ruling by the Internal
Revenue Service.
RESULTS OF OPERATIONS
Revenues for the three and nine month periods ended July 31, 2000 decreased 5
percent and 11 percent, respectively, compared with the same periods of 1999.
Net earnings for the three and nine month periods ended July 31, 2000 were $33.3
million and $136.6 million, compared with net earnings of $50.2 million and
$28.3 million, respectively, for the same periods of 1999. The 1999 net earnings
include the effect of a $136.5 million pretax special provision ($119.8 million
after tax, or $1.59 per diluted share). The special provision is not allocated
to the Company's business segments. Operating results for the three months ended
July 31, 2000 were impacted by nonrecurring credits of $12.0 million relating to
the recovery of excise taxes paid on coal export sales by the Coal segment plus
related interest of $5.3 million. The taxes were determined to be
unconstitutional by a 1998 federal district court decision and the Internal
Revenue Service has recently issued procedures for obtaining refunds of the
excise taxes. Operating results for the nine months ended July 31, 2000 were
impacted by the excise tax refund and two other nonrecurring items that occurred
during the second quarter of 2000. First, $17.9 million of the special provision
was reversed into earnings as a result of the Company's decision to retain
ownership and remain in its current office location in Camberley, U.K.
Additionally, the Fluor Global Services segment recorded a nonrecurring charge
in the amount of $19.3 million relating to the write-off of certain assets and
the loss on the sale of a European-based consulting business. Excluding all
nonrecurring items, net earnings from operations for the third quarter and nine
months ended July 31, 2000 were $21.1 million ($0.28 per diluted share) and
$125.8 million ($1.65 per diluted share), compared with $50.2 million ($0.66 per
diluted share) and $148.1 million ($1.96 per diluted share) for the respective
periods of 1999. As discussed in greater detail
13
<PAGE> 15
in the following section, the Fluor Daniel segment has recorded significant
provisions for cost-overruns on one project during 2000 and for process design
problems on another project during 1999.
FLUOR DANIEL
Revenues and operating profit for the Fluor Daniel segment for the three and
nine month periods ended July 31, 2000 and 1999 are summarized as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------- ----------------------
$ in millions 2000 1999 2000 1999
------------------------------------------------------------------------------
Revenues $1,866.2 $2,068.2 $5,444.2 $6,598.2
Operating (loss) profit $ (0.4) $ 49.7 $ 82.4 $ 128.2
Revenues declined by 10 percent and 17 percent for the three and nine month
periods ended July 31, 2000 compared with the same periods of 1999, primarily
due to a reduction in work performed which is consistent with the downward trend
in new awards experienced during 1999 and 1998.
During the quarter and nine months ended July 31, 2000, Fluor Daniel recorded
provisions of $54 million and $60 million, respectively, 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 Fluor Daniel. The Dearborn project has been impacted by a number
of adverse factors, including labor productivity and substantial scope of work
changes.
Operating profit for the nine months ended July 31, 1999 included a second
quarter provision totaling $64 million for process design problems on the Murrin
Murrin nickel cobalt project in Western Australia. The Company anticipates
recovering a portion of that amount and, accordingly, recorded $44 million in
potential insurance recoveries during the same period. The result was a negative
$20 million impact for the 1999 nine month period. Partially offsetting this was
the recognition of $10 million of earnings from a project in Indonesia.
Realization of these earnings had been in question primarily due to the
uncertainty of collection of certain progress billings. The collection of the
billings combined with the resolution of other normal project completion
contingencies during the second quarter of 1999, resulted in recognition of
project earnings in accordance with contract accounting principles. Expressed as
percentages of revenues, operating margins were a loss of less than 0.1 percent
and a profit of 1.5 percent for the three and nine month periods of 2000,
compared with profits of 2.4 percent and 1.9 percent for the comparable periods
of 1999. Excluding the loss provisions and recoveries discussed above, operating
margins have increased to 2.9 percent and 2.6 percent for the third quarter and
nine months ended July 31, 2000, compared with 2.4 percent and 2.1 percent
during the corresponding 1999 periods. These increases have resulted from
improvements in both overhead cost management and project margins during 2000.
14
<PAGE> 16
New awards for the three and nine months ended July 31, 2000 were $1.2 billion
and $4.1 billion, compared with $1.2 billion and $3.9 billion for the same
periods of 1999. Approximately 23 percent and 48 percent, respectively, of the
new awards for the three and nine months ended July 31, 2000 were for projects
located outside of the United States. The increase in 2000 new awards compared
with 1999 reflects substantial new awards in the Mining business unit during the
second quarter, partially offset by lower new awards due to deferred capital
spending in the chemicals industry.
The following table sets forth backlog for each of the segment's business units:
<TABLE>
<CAPTION>
July 31, October 31, July 31,
$ in millions 2000 1999 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals & Life Sciences $ 1,159 $ 1,964 $ 2,292
Oil, Gas & Power 2,825 2,583 2,530
Mining 1,002 657 716
Manufacturing 865 1,170 1,282
Infrastructure 382 396 435
-------- -------- --------
Total backlog $ 6,233 $ 6,770 $ 7,255
======== ======== ========
United States $ 2,939 $ 2,870 $ 3,032
International 3,294 3,900 4,223
-------- -------- --------
Total backlog $ 6,233 $ 6,770 $ 7,255
======== ======== ========
</TABLE>
The decrease in total backlog compared with July 31, 1999 is consistent with the
reduced levels of new awards in the prior two years, reflecting both the
lingering impact of deferred capital spending by clients and the Company's
continuing emphasis on greater project selectivity. 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.
FLUOR GLOBAL SERVICES
Revenues and operating profit for the Fluor Global Services segment for the
three and nine month periods ended July 31, 2000 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------- -----------------------
($ in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $757.4 $734.9 $2,203.6 $2,152.3
Operating profit $ 34.9 $ 18.3 $ 71.4 $ 56.4
</TABLE>
15
<PAGE> 17
Revenues increased by 3 percent during the third quarter of 2000 compared with
the third quarter of 1999 and increased by 2 percent for the nine month period
ended July 31, 2000 compared with the same period of 1999. Revenue gains by the
Telecommunications and Operations & Maintenance business units during 2000 have
more than offset declines experienced by the other business units.
Operating profits have increased as the result of both higher project gross
margins and reductions in overhead. Operating profit for the nine months ended
July 31, 2000 includes a $19.3 million charge relating to the write-off of
certain assets and a loss on the sale of a European-based consulting business.
Excluding this 2000 impact, operating profit for the nine month period ended
July 31, 2000 increased to $90.7 million from $56.4 million in the comparable
period of 1999
New awards for the three and nine months ended July 31, 2000 were $1.0 billion
and $2.2 billion, compared with $427.3 million and $1.1 billion for the same
periods of 1999. New awards for the third quarter of 2000 were almost entirely
for domestic projects. Approximately 24 percent of the new awards for the nine
months ended July 31, 2000 were for projects located outside of the United
States. The increase in new awards during 2000 compared with 1999 is due to
higher Telecommunications and Operations & Maintenance awards.
The following table sets forth backlog for each of the segment's business units:
July 31, October 31, July 31,
$ in millions 2000 1999 1999
-------------------------------------------------------------------------
Fluor Federal Services $ 178 $ 710 $ 326
Telecommunications 1,017 525 585
Operations & Maintenance 1,363 1,127 945
Other 1 10 14
------- ------- -------
Total backlog $ 2,559 $ 2,372 $ 1,870
======= ======= =======
United States $ 1,984 $ 2,137 $ 1,657
International 575 235 213
------- ------- -------
Total backlog $ 2,559 $ 2,372 $ 1,870
======= ======= =======
The increase in total backlog is consistent with the growth in new awards.
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.
16
<PAGE> 18
COAL
Revenues and operating profit for the Coal segment for the three and nine month
periods ended July 31, 2000 and 1999 are summarized as follows:
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------- ------------------
$ in millions 2000 1999 2000 1999
----------------------------------------------------------------------------
Revenues $275.1 $266.3 $797.3 $794.3
Operating profit $ 39.6 $ 33.7 $101.5 $104.1
Revenues increased by 3 percent during the third quarter of 2000 compared with
the third quarter of 1999 but remained essentially flat for the nine month
period ended July 31, 2000 compared with the same period of 1999. The volume of
steam coal sold has increased significantly during the current year (10 percent
for the third quarter and 17 percent for the first nine months of 2000 compared
with 1999). The volume of the higher priced metallurgical coal increased by 5
percent during the third quarter of 2000 compared with the same period of 1999,
but decreased by 6 percent on a year-to-date basis. The average realized prices
for both steam and metallurgical coal declined, by 3 percent and 6 percent,
respectively, for the third quarter. For the nine month period ended July 31,
2000, average realized prices declined by 6 percent for both types of coal
compared with the same period in 1999. The metallurgical coal market continues
to be adversely affected by a weak coal export market and the slow recovery of
the domestic steel market. Demand is weak for U.S. coal exported to foreign
markets as the U.S. dollar remains strong. The market for steam coal, which is
used to fire electric-generating plants, continues to be adversely impacted by
high customer inventory levels resulting from recent mild weather and
competition from western coals, which is increasing its penetration of the
traditional eastern coal market areas.
Operating profit for the three and nine months ended July 31, 2000 includes a
$12.0 million credit for excise taxes paid on coal export sales tonnage. The
payment of excise taxes on export coal was determined to be unconstitutional by
a 1998 federal district court decision and the Internal Revenue Service recently
issued procedures for obtaining refunds related to such excise taxes.
Cost of sales on a per ton of coal sold basis, excluding the excise tax credit,
increased by approximately 8 percent during the three months ended July 31, 2000
compared with the same period of 1999. Operational problems and adverse geologic
conditions encountered at several mines resulted in material increases in the
cost per ton of coal sold. For the nine months ended July 31, 2000 compared with
the same period in 1999, cost of sales on a per ton of coal sold basis,
excluding the excise tax credit, increased by approximately 1 percent as the
Coal segment's operational problems and adverse geologic conditions encountered
during the third quarter more than offset cost reductions that had been achieved
during the nine months ended July 31, 2000. Indirect costs (which include
depreciation, depletion and amortization and administrative expenses) declined
by 1 percent during the first nine months of 2000 compared with the same period
of 1999 as the result of lower administrative expenses, due in part to reduced
accruals related to long term executive compensation plans.
Partially offsetting the impact of operational problems on operating profit has
been an increase in gains from the sale or exchange of coal reserves in place.
As the Coal segment manages its coal
17
<PAGE> 19
reserves, it regularly sells or exchanges non-strategic reserves for reserves
located in more synergistic locations. During the third quarter and first nine
months of 2000, the Coal segment realized gains of $10.6 million and $26.5
million, respectively, from such transactions, compared with gains of $10.2
million during the first nine months of 1999.
The geologic conditions encountered at one mine during the third quarter may
necessitate a charge of between $5 to $9 million during the final quarter of
2000, depending on an evaluation of mining conditions and the resulting
recoverability of mine development costs.
Harman Mining Corporation and certain of its affiliates (collectively "Harman")
filed a breach of contract action against Wellmore Coal Corporation, a former
Massey subsidiary, in Buchanan County, Virginia Circuit Court. In May 2000, in a
trial to determine liability only, Harman received a jury verdict that Wellmore
breached the contract. On August 24, 2000, as part of the damages phase of the
trial, a jury awarded damages in the amount of $6 million. Massey intends to
appeal the award and will defend the action vigorously.
FLUOR SIGNATURE SERVICES
The Fluor Signature Services segment, which was created to provide business and
administrative support services to the operating units with distinct
profit-and-loss accountability, officially began operations at the start of
fiscal 2000. External revenues during the third quarter and first nine months of
the year totaled $4.0 million and $13.8 million. The segment reported an
operating profit of $1.1 million during the third quarter, which resulted in a
year-to-date operating profit of $0.7 million.
STRATEGIC REORGANIZATION COSTS
In March 1999, the Company announced a new strategic direction, including a
reorganization of the operating units and administrative functions of its
engineering and construction segment. In connection with this reorganization,
the Company recorded in the second quarter of fiscal year 1999 a special
provision of $136.5 million pretax to cover direct and other reorganization
related costs, primarily for personnel, facilities and asset impairment
adjustments. In the second quarter of 2000, $17.9 million of the special
provision was reversed into earnings as a result of the Company's decision to
retain ownership and remain in its current office location in Camberley, U.K.
The Company continues to implement this reorganization plan. To date, slightly
more than 5,000 jobs have been eliminated with additional separations to be
completed by the end of the fiscal year. Two offices were closed during the
second quarter of 2000. These closures and the decision to retain facilities in
Camberley, bring total offices closed to 15 thus completing the office
utilization initiatives under the reorganization plan.
The special provision liability as of July 31, 2000 totaled $17.0 million and is
comprised of $12.4 million for personnel costs and $4.6 million for lease
termination costs. The remaining liability for personnel costs will be
substantially utilized by year-end. The remaining liability associated with
abandoned lease space will be amortized as an offset to lease expense over the
remaining life of the respective leases starting on the date of abandonment.
18
<PAGE> 20
OTHER
Net interest expense for the three and nine month periods ended July 31, 2000
increased by $0.3 million and $5.5 million, respectively, compared with the
corresponding periods of 1999 as the combined result of a decline in interest
income resulting from lower average cash balances outstanding during the
periods, higher levels of short-term debt and an increase in interest rates for
commercial paper during the third quarter of 2000. These factors were largely
offset during the third quarter of 2000 by a nonrecurring interest credit of
$5.3 million associated with the Coal segment's excise tax recovery.
Corporate administrative and general expense for the third quarter and nine
months ended July 31, 2000 was $3.3 million lower and $4.8 million higher
compared with those same periods in 1999 as the net result of several factors.
Development costs associated with the Company's knowledge management and global
sales development programs have increased current year expenses significantly.
Costs related to the Company's Enterprise Resource Management system,
Knowledge@Work, totaled $5.3 million during the third quarter of 2000 and $15.8
million for the first nine months of the year. Expenditures of $5.1 million for
this program started during the third quarter of 1999. The Global Business
Development organization had expenditures during the third quarter and nine
months ended July 31, 2000 of $5.6 million and $14.8 million, respectively.
Higher expenses in these areas were partially offset by the reversal during the
second quarter of 2000 of previously recorded long-term (stock-based) incentive
compensation expense as a result of the decline in trading prices of Fluor
Corporation stock during the period. An additional credit of $0.2 million for
long-term incentive compensation was recorded during the third quarter of 2000,
compared with a $5.5 million charge during the third quarter of 1999.
The Company's effective tax rate during 1999 was significantly impacted by the
special provision due to certain non-U.S. items that did not receive full tax
benefit. The reversal of a portion of the reserve during the second quarter of
2000 had an offsetting positive impact on the effective tax rate. However, that
benefit was substantially offset by the absence of a tax benefit on the
nonrecurring charge for disposition of the European-based consulting business
recorded by Fluor Global Services during the same period. The nonrecurring items
recorded during the third quarter of 2000 did not impact the Company's effective
tax rate. Excluding the impacts of the special provision in each year and the
nonrecurring charge recorded by Fluor Global Services in the second quarter of
2000, the effective tax rate in both the three and nine month periods ended July
31, 2000 was 29.5 percent, compared with 31.8 percent and 32.8 percent during
the corresponding periods of 1999. The current year decreases have resulted from
the successful implementation of a number of tax reduction initiatives.
FINANCIAL POSITION AND LIQUIDITY
At July 31, 2000, the Company had cash and cash equivalents of $105.6 million
and a total debt to total capital ratio of 31.1 percent, compared with cash and
cash equivalents of $209.6 million and a total debt to total capital ratio of
26.3 percent at the end of fiscal year 1999.
Cash flow provided by operating activities was $90.3 million during the nine
month period ended July 31, 2000, compared with $304.5 million during the same
period in 1999. This change is primarily due to an increase in net operating
assets and liabilities associated with engineering and construction activities.
The level of operating assets and liabilities is affected from period to
19
<PAGE> 21
period by the mix, stage of completion and commercial terms of engineering,
procurement and construction projects.
Cash utilized by investing activities totaled $299.4 million during the nine
month period ended July 31, 2000 compared with $264.6 million during the same
period in 1999. Capital expenditures increased by $23.2 million, including $47.0
million of capitalized costs for Knowledge@Work during the first nine months of
2000. Proceeds from the sale of property, plant and equipment were $21.3 million
lower in the first nine months of 2000 compared with that same period in 1999,
reflecting the cyclical nature of the equipment sale/rental business. The
Company completed the sale of its ownership interest in Fluor Daniel GTI, Inc.
during the first quarter of 1999 and received proceeds totaling $36.3 million.
Cash provided by financing activities totaled $105.1 million during the nine
month period ended July 31, 2000 compared with cash utilized of $160.5 million
for the same period in 1999. During the first nine months of fiscal year 2000,
the Company increased its short-term borrowings by $171.8 million, including
increases in commercial paper of $159.8 million and notes payable to banks of
$12.0 million. In addition, the Company increased its note payable to affiliate
by $9.0 million during the first nine months of fiscal year 2000. Dividends paid
during the first nine months of 2000 were $57.0 million ($0.75 per share)
compared with $45.5 million ($0.60 per share) for the same period in 1999. 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 outstanding common
stock for $23.0 million during the second quarter of 2000. Up to 7.5 million
shares of common stock may be repurchased under the program. The repurchase
program was suspended in the third quarter. The repurchase program is being
funded from operating cash flow and supplemented by short-term credit facilities
as repurchase opportunities arise.
The Company has on hand and access to sufficient sources of funds to meet its
anticipated operating needs. 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 has a forward purchase contract for 1,850,000 shares of its common
stock. The contract matures in October 2000 and gives the Company the ultimate
choice of settlement option, either physical settlement or net share settlement.
As of July 31, 2000, the contract settlement cost per share exceeded the current
market price per share by $23.70.
If during the term of the contract, the price of the Company's stock falls to
certain levels, as defined in the contract, the holder of the contract has the
right to require the Company to register the shares or, if the price declines
beyond a stated level, to settle the contract at the Company's choice of
settlement option.
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 July 31, 2000 and October 31, 1999, the Company had
forward foreign exchange contracts of less than eighteen months duration, to
exchange principally Euros, British pounds, Australian dollars,
20
<PAGE> 22
Canadian dollars, Dutch guilders and German marks for U.S. dollars. The total
gross notional amount of these contracts at July 31, 2000 and October 31, 1999
was $28 million and $124 million, respectively. Forward contracts to purchase
foreign currency amounted to $1 million and $122 million at July 31, 2000 and
October 31, 1999, respectively. Forward contracts to sell foreign currency
totaled $27 million and $2 million at July 31, 2000 and October 31, 1999,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes new standards
for recording derivatives in interim and annual financial statements. This
statement, as amended, is effective for the Company's fiscal year 2001.
Management does not anticipate that the adoption of the new statement will have
a significant impact on the results of operations or the financial position of
the Company.
21
<PAGE> 23
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
Three and Nine Months Ended July 31, 2000 and 1999
UNAUDITED
Three Months Ended July 31,
---------------------------
$ in millions 2000 1999
--------------------------------------------------------------------------
Backlog - beginning of period $ 9,188.1 $10,222.5
New awards 2,217.6 1,601.7
Adjustments and cancellations, net (165.6) (103.9)
Work performed (2,447.6) (2,595.4)
--------- ---------
Backlog - end of period $ 8,792.5 $ 9,124.9
========= =========
Three Months Ended July 31,
---------------------------
$ in millions 2000 1999
-------------------------------------------------------------------------
Backlog - beginning of period $ 9,142.0 $12,645.3
New awards 6,360.4 4,923.7
Adjustments and cancellations, net 399.9 (356.6)
Work performed (7,109.8) (8,087.5)
--------- ---------
Backlog - end of period $ 8,792.5 $ 9,124.9
========= =========
22
<PAGE> 24
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule as of and for the nine months ended
July 31, 2000.
(b) Reports on Form 8-K.
None.
23
<PAGE> 25
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: September 14, 2000 /s/ R. F. Hake
-------------------------------------
R. F. Hake, Executive Vice President
and Chief Financial Officer
/s/ V. L. Prechtl
-------------------------------------
V. L. Prechtl, Vice President and
Controller
24
<PAGE> 26
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27.1 Financial Data Schedue as of and for the nine months
ended July 31, 2000.
