<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 January 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
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(Exact name of registrant as specified in its charter)
Delaware 95-0740960
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
One Enterprise Drive, Aliso Viejo, CA 92698
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(Address of principal executive offices)
(949) 349-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of February 29, 2000 there were 76,368,610 shares of common stock
outstanding.
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FLUOR CORPORATION
FORM 10-Q
JANUARY 31, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
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<S> <C> <C>
Part I: Financial Information
Condensed Consolidated Statement of Earnings for the Three Months Ended
January 31, 2000 and 1999 .............................................. 2
Condensed Consolidated Balance Sheet at January 31, 2000 and
October 31, 1999 ....................................................... 3
Condensed Consolidated Statement of Cash Flows for the Three Months
Ended January 31, 2000 and 1999 ........................................ 5
Notes to Condensed Consolidated Financial Statements ................... 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 10
Changes in Backlog ..................................................... 19
Part II: Other Information ...................................................... 20
Signatures ...................................................................... 21
</TABLE>
1
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PART I: FINANCIAL INFORMATION
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended January 31, 2000 and 1999
UNAUDITED
<TABLE>
<CAPTION>
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $2,998,519 $3,384,065
COSTS AND EXPENSES
Cost of revenues 2,897,758 3,291,204
Corporate administrative and general expense 16,828 9,558
Interest expense 13,108 13,004
Interest income (3,291) (4,600)
---------- ----------
Total Costs and Expenses 2,924,403 3,309,166
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EARNINGS BEFORE INCOME TAXES 74,116 74,899
INCOME TAX EXPENSE 21,864 23,818
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NET EARNINGS $ 52,252 $ 51,081
========== ==========
EARNINGS PER SHARE
BASIC $ .69 $ .68
========== ==========
DILUTED $ .69 $ .68
========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .20
========== ==========
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 75,602 75,119
========== ==========
DILUTED EARNINGS PER SHARE 76,149 75,633
========== ==========
</TABLE>
See Accompanying Notes.
2
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FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 2000 and October 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
$ IN THOUSANDS 2000 1999*
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 148,130 $ 209,614
Accounts and notes receivable 818,262 850,557
Contract work in progress 393,485 416,285
Deferred taxes 107,737 105,502
Inventories and other current assets 365,726 328,213
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Total current assets 1,833,340 1,910,171
---------- ----------
Property, Plant and Equipment (net of accumulated
depreciation, depletion and amortization of $1,284,171
and $1,245,644, respectively) 2,271,129 2,222,953
Investments and goodwill, net 299,287 283,936
Other 466,033 469,057
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$4,869,789 $4,886,117
========== ==========
</TABLE>
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* Amounts at October 31, 1999 have been derived from audited financial
statements.
(Continued On Next Page)
3
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FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 2000 and October 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
$ IN THOUSANDS 2000 1999*
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 729,508 $ 793,465
Short-term debt 347,994 247,911
Advance billings on contracts 509,978 565,373
Accrued salaries, wages and benefit plans 267,585 321,148
Other accrued liabilities 267,104 276,413
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Total current liabilities 2,122,169 2,204,310
---------- ----------
Long-term debt due after one year 318,150 317,555
Deferred taxes 168,982 162,210
Other noncurrent liabilities 633,283 620,670
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 $.625 par value;
issued and outstanding - 76,372,541 shares and
76,034,296 shares, respectively 47,733 47,521
Additional capital 232,222 217,844
Retained earnings 1,408,570 1,375,338
Unamortized executive stock plan expense (28,433) (21,579)
Accumulated other comprehensive income (32,887) (37,752)
---------- ----------
Total shareholders' equity 1,627,205 1,581,372
---------- ----------
$4,869,789 $4,886,117
========== ==========
</TABLE>
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* Amounts at October 31, 1999 have been derived from audited financial
statements.
See Accompanying Notes.
4
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FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 2000 and 1999
UNAUDITED
<TABLE>
<CAPTION>
$ IN THOUSANDS 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 52,252 $ 51,081
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation, depletion and amortization 73,805 77,917
Deferred taxes 3,340 469
Changes in operating assets and liabilities, excluding
effects of business acquisitions/dispositions (157,847) (51,277)
Other, net 1,831 (27,997)
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Cash (utilized) provided by operating activities (26,619) 50,193
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (132,129) (135,057)
Proceeds from sale of subsidiary -- 36,300
Proceeds from sale of property, plant and equipment 21,323 42,272
Investments, net (13,045) (4,502)
Other, net 1,234 (4,629)
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Cash utilized by investing activities (122,617) (65,616)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings 114,814 (41,135)
(Payments on) proceeds from issuance of note payable to
affiliate (14,506) 38,500
Cash dividends paid (19,020) (15,159)
Stock options exercised 5,811 1,854
Other, net 653 (933)
--------- ---------
Cash provided (utilized) by financing activities 87,752 (16,873)
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Decrease in cash and cash equivalents (61,484) (32,296)
Cash and cash equivalents at beginning of period 209,614 340,544
--------- ---------
Cash and cash equivalents at end of period $ 148,130 $ 308,248
========= =========
</TABLE>
See Accompanying Notes.
5
<PAGE> 7
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 months ended January 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 January 31,
2000 and its consolidated results of operations and cash flows for the
three months ended January 31, 2000 and 1999.
Certain 1999 amounts have been reclassified to conform with the 2000
presentation.
(2) Inventories comprise the following:
January 31, October 31,
$ in thousands 2000 1999
----------------------------------------------------------------
Equipment for sale/rental $119,714 $131,781
Coal 76,698 72,070
Supplies and other 54,271 44,267
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$250,683 $248,118
======== ========
(3) Short-term debt comprises the following:
January 31, October 31,
$ in thousands 2000 1999
----------------------------------------------------------------
Commercial paper $244,060 $113,746
Note payable to affiliate 98,873 113,379
Loan notes -- 15,500
Trade notes payable 5,061 5,286
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$347,994 $247,911
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6
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FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(4) Total comprehensive income represents the net change in shareholders'
equity during a period from sources other than transactions with
shareholders and as such, includes net earnings. For the Company, the
only other component of total comprehensive income is the change in
the cumulative foreign currency translation adjustments recorded in
shareholders' equity.
The components of comprehensive income, net of related tax, are as
follows:
Three months ended
January 31,
---------------------------
($ in thousands) 2000 1999
---------------------------------------------------------------------
Net earnings $ 52,252 $ 51,081
Foreign currency translation adjustment 4,865 226
-------- --------
Comprehensive income $ 57,117 $ 51,307
======== ========
(5) Cash paid for interest was $8.8 million and $7.5 million for the
three month periods ended January 31, 2000 and 1999, respectively.
Income tax payments, net of receipts, were $12.0 million and $21.5
million during the three month periods ended January 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 January 31, 2000, the
contract settlement cost per share exceeded the current market price
per share by $12.10.
Although the ultimate choice of settlement option resides with the
Company, if the price of the Company's common stock falls to certain
levels, as defined in the contract, the holder of the contract has
the right to require the Company to settle the contract.
7
<PAGE> 9
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 pre-tax to
cover direct and other reorganization related costs, primarily for
personnel, facilities and asset impairment adjustments. In October
1999, $19.3 million of the special provision was reversed into
earnings as a result of lower than anticipated severance costs for
personnel reductions in certain overseas offices. Both the actual
number of employee terminations as well as the cost per employee were
lower than originally estimated.
To date, the Company has eliminated slightly more than 5,000 jobs
with additional separations to be completed by the end of the third
quarter. No offices were closed during the quarter; however, the
Company anticipates closing two additional offices by July 31, 2000.
The following table summarizes the status of the Company's
reorganization plan as of January 31, 2000:
<TABLE>
<CAPTION>
Lease
Personnel Asset Termination
($ in millions) Costs Impairments Costs Other Total
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<S> <C> <C> <C> <C> <C>
Balance at October 31, 1999 $25.2 $23.4 $ 9.7 $ 0.2 $58.5
Cash expenditures (2.8) -- (1.6) -- (4.4)
Non-cash activities (0.2) (0.4) -- (0.2) (0.8)
----- ----- ----- ----- -----
Balance at January 31, 2000 $22.2 $23.0 $ 8.1 $ -- $53.3
===== ===== ===== ===== =====
</TABLE>
The special provision liability as of January 31, 2000 is included in
other accrued liabilities. The liability for personnel costs and
asset impairments will be substantially utilized by July 31, 2000.
The liability associated with abandoned lease space will be amortized
as an offset to lease expense over the remaining life of the
respective leases starting on the date of abandonment.
8
<PAGE> 10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(8) In the fourth quarter of 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS No. 131). The
statement establishes new standards for the way that business
enterprises report information about operating segments as well as
the related disclosures about products and services, geographical
areas and major customers. The adoption of SFAS No. 131 did not
affect the consolidated results of operations or financial position
of the Company, but it did affect the business segments that are
disclosed. Prior year disclosures have been restated to conform to
the new basis of reporting.
Operating Information by Segment - For the three months ended January
31, 2000 and 1999:
<TABLE>
<CAPTION>
Fluor Fluor
Fluor Global Massey Signature
($ in millions) Daniel Services Coal Services Total
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<S> <C> <C> <C> <C> <C>
2000
External revenues $1,969.6 $764.1 $260.1 $ 4.7 $2,998.5
Operating profit (loss) $ 40.9 $ 28.1 $ 31.6 $(1.0) $ 99.6
1999
External revenues $2,445.1 $664.3 $274.6 -- $3,384.0
Operating profit $ 39.8 $ 17.3 $ 38.7 -- $ 95.8
</TABLE>
Reconciliation of Segment Information to Consolidated Amounts - For
the three months ended January 31, 2000 and 1999:
($ in millions) 2000 1999
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Operating Profit
Total segment operating profit $ 99.6 $ 95.8
Corporate administrative and general expense (16.8) (9.6)
Interest (expense) income, net (9.8) (8.4)
Other items, net 1.1 (2.9)
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Earnings before taxes $ 74.1 $ 74.9
====== ======
9
<PAGE> 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, 1999 annual
report on Form 10-K. For purposes of reviewing this document "operating profit"
is calculated as revenues less cost of revenues excluding: 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,
expectations regarding office closures and projected reductions in employment
levels and overhead expenses, expectations regarding its resolution of any "Year
2000" issues, expectations regarding continued weakness in new contract awards
and expectations regarding the issuance of long-term debt are forward looking.
Statements regarding industry and competitive trends are also forward looking.
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 Cost overruns on contracts and other contract performance risk
o The uncertain timing of awards and revenues under contracts
o Conditions affecting the domestic and international coal market, including
competition in the global market for steel and weather conditions
o Global economic and political conditions
o Unforeseen impediments to the Company's access to capital markets
o Year 2000 readiness
o Unforeseen impediments to the realization of the Company's strategic
initiatives
There is also a risk that future results may be impacted by currently unforeseen
impediments to the realization of revenues or other payments that have been
recognized through accruals prior to actual receipt. Failure to realize such
accrued amounts may result in a charge against future earnings.
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. Such filings are available publicly
and upon request from Fluor's Investor Relations Department: (949) 349-3909. The
Company disclaims any intent or obligation to update its forward-looking
statements.
10
<PAGE> 12
RECENT EVENTS
On February 22, 2000, the Company announced that it will be changing its fiscal
year end to a calendar year effective January 1, 2001. The change is being made
to better align the Company with its clients, suppliers and the financial
markets.
On February 23, 2000, the Company announced that it will close its Marlton, New
Jersey facility, eliminating more than 300 jobs. The closure reflects the
Company's continuing efforts to capitalize on new market opportunities and
create greater operational efficiencies. The Company expects to phase out all
Marlton operations by July 1, 2000.
On March 8, 2000, the Company's Board of Directors approved a stock buyback
program authorizing the repurchase of up to 7.5 million shares of its common
stock. The repurchase program will begin immediately and will be funded from
operating cash flow and supplemented by short-term credit facilities as
repurchase opportunities arise.
RESULTS OF OPERATIONS
Revenues for the three month period ended January 31, 2000 decreased 11 percent,
compared with the same period of 1999. Despite this decline, net earnings for
the three month period ended January 31, 2000 were $52.3 million compared with
$51.1 million for the same period of 1999, an increase of 2 percent. The
increase in net earnings was the result of improved operating profit in the
Fluor Daniel and Fluor Global Services segments, the settlement of a dispute
with a major service provider that resulted in an after-tax gain of $2.9 million
and a lower effective tax rate. These items were offset by lower operating
profit in the Massey segment, increased net interest expense and higher
corporate administrative and general expense.
The Company anticipates a slightly weaker second quarter followed by a stronger
second half, as operating profit improvements become more broadly based across
all business segments. The Company continues to anticipate a modest earnings
growth in 2000 as compared to 1999, excluding the impact of the special
provision.
FLUOR DANIEL
Revenues for the Fluor Daniel segment declined by 19 percent for the three month
period ended January 31, 2000 compared with the same period 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. Operating profit for the three
months ended January 31, 2000 nonetheless increased 3 percent to $40.9 million,
compared with $39.8 million during the same period of 1999, due to improvements
in both overhead cost management and project margins.
11
<PAGE> 13
New awards for the three months ended January 31, 2000 were $1.4 billion
compared with $1.5 billion for the three months ended January 31, 1999.
Approximately 51 percent of first quarter 2000 new awards were for projects
located outside the United States. The slight decrease in 2000 new awards as
compared to 1999 reflects the increased focus on project selectivity and
deferred capital spending in the chemicals industry, offset by growth in the
power sector.
The following table sets forth backlog for each of the segment's business units:
January 31, October 31, January 31,
$ in millions 2000 1999 1999
- ------------------------------------------------------------------------
Chemicals & Life Sciences $1,682 $1,964 $3,259
Oil, Gas & Power 3,053 2,583 2,497
Mining 395 657 1,256
Manufacturing 1,028 1,170 1,503
Infrastructure 340 396 458
------ ------ ------
Total backlog $6,498 $6,770 $8,973
====== ====== ======
United States $2,818 $2,870 $3,231
International 3,680 3,900 5,742
------ ------ ------
Total backlog $6,498 $6,770 $8,973
====== ====== ======
The decrease in total backlog is consistent with the reduced levels of new
awards in the prior two years. 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 for the Fluor Global Services segment increased by 15 percent for the
three month period ended January 31, 2000 compared with the same period of 1999,
primarily due to increases in the Fluor Federal Services, Telecommunications and
Operations & Maintenance business units. Operating profit for the three months
ended January 31, 2000 increased 62 percent to $28.1 million, compared with
$17.3 million during the same period of 1999, reflecting improved operating
results in several business units.
New awards for the three months ended January 31, 2000 were $1.0 billion
compared with $.2 billion for the three months ended January 31, 1999.
Approximately 52 percent of first quarter 2000 new awards were for projects
located outside the United States. The increase in 2000 new awards as compared
to 1999 reflects a $465 million telecommunications award as well as increased
Operations & Maintenance awards.
12
<PAGE> 14
The following table sets forth backlog for each of the segment's business units:
January 31, October 31, January 31,
$ in millions 2000 1999 1999
- ------------------------------------------------------------------------
Fluor Federal Services $ 518 $ 710 $ 647
Telecommunications 852 525 171
Operations & Maintenance 1,355 1,127 1,265
Consulting Services and Other 15 10 8
------ ------ ------
Total backlog $2,740 $2,372 $2,091
====== ====== ======
United States $2,086 $2,137 $1,827
International 654 235 264
------ ------ ------
Total backlog $2,740 $2,372 $2,091
====== ====== ======
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.
COAL
Revenues decreased 5 percent for the three month period ended January 31, 2000
compared with the same period in 1999. The decrease was primarily due to the
combination of a reduction in volume for the higher priced metallurgical coal
and a decline in prices. Metallurgical coal volume decreased by 19 percent
during the quarter ended January 31, 2000 compared with the same period in 1999.
This decrease was largely offset by an increase in lower priced steam coal
sales. Steam and metallurgical coal prices have both declined by approximately 4
percent during the current fiscal year. The metallurgical coal market continues
to be adversely affected by a weak coal export market. Demand is weak for U.S.
coal exported to foreign markets as the U.S. Dollar remains strong.
Additionally, the market for steam coal, which is used to fire
electric-generating plants, continues to be impacted by high customer inventory
levels resulting from recent mild winters and competition from western coals,
which continue to penetrate the traditional eastern coal market areas. Operating
profit for the three months ended January 31, 2000 was $31.6 million compared
with $38.7 million for the same period in 1999. The decline was the combined
result of the continued difficult market conditions and a number of operating
disruptions, including severe geologic conditions and a roof fall at a longwall
mine.
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 quarter totaled $4.7 million and were
primarily for safety-related services. The segment reported a slight operating
loss of $1 million during the first quarter.
13
<PAGE> 15
STRATEGIC REORGANIZATION COSTS
The Company continues to implement its reorganization plan initiated in March
1999. To date, slightly more than 5,000 jobs have been eliminated with
additional separations to be completed by the end of the third quarter. No
offices were closed during the quarter; however, the Company anticipates closing
two additional offices by July 31, 2000.
The special provision liability as of January 31, 2000 totaled $53.3 million and
is comprised as follows: $22.2 million for personnel costs; $23.0 million for
asset impairments; and $8.1 million for lease termination costs. The remaining
liability for personnel costs and asset impairments will be substantially
utilized by July 31, 2000. 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.
OTHER
During the three months ended January 31, 2000 the Company recognized a gain of
$4.7 million ($2.9 million after-tax) relating to the settlement of a dispute
with a major service provider. This gain is included in cost of revenues, but
was not allocated to a specific business segment.
Net interest expense for the three months ended January 31, 2000 increased
compared with the same period of 1999 primarily due to a decline in interest
income resulting from lower average cash balances outstanding during the
quarter.
Corporate administrative and general expense in the first quarter ended January
31, 2000 was higher compared with the same period in 1999 as the result of
development costs associated with the Company's several knowledge management and
global sales development programs. Costs related to the Company's Enterprise
Resource Management system, Knowledge@Work, totaled $4.3 million during the
first quarter of 2000.
The Company's effective tax rate decreased approximately 2 percentage points for
the three month period ended January 31, 2000 as compared with the same period
of 1999. This decrease was the result of the successful implementation of a
number of tax reduction initiatives.
FINANCIAL POSITION AND LIQUIDITY
At January 31, 2000, the Company had cash and cash equivalents of $148.1 million
and a total debt to total capital ratio of 29.0 percent. At January 31, 1999,
the Company had cash and cash equivalents of $308.2 million and a total debt to
total capital ratio of 31.7 percent.
Cash flow utilized by operating activities was $26.6 million during the three
month period ended January 31, 2000, compared with cash flow generated from
operations of $50.2 million during the same period in 1999. The decrease in cash
generated from operating activities is primarily due to reductions in current
liabilities during the current quarter.
14
<PAGE> 16
Cash utilized by investing activities totaled $122.6 million during the three
month period ended January 31, 2000 compared with $65.6 million during the same
period in 1999. Capital expenditures were down slightly, reflecting a decrease
of $24 million for Massey Coal partially offset by increases in Fluor Global
Services (primarily for AMECO) and for Knowledge@Work. Proceeds from the sale of
property, plant and equipment were lower in 2000 compared with 1999, reflecting
the cyclical nature of the equipment sale/rental business. The Company also
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 $87.8 million during the three
month period ended January 31, 2000 compared with the same period in 1999 during
which time the Company utilized cash from financing activities of $16.9 million.
During 2000 the Company increased its short-term borrowings by $114.8 million,
representing an increase in commercial paper of $130.3 million offset by a
reduction in loan notes of $15.5 million. In addition, the Company reduced its
note payable to affiliate by $14.5 million during the three month period ended
January 31, 2000. Dividends paid during the first quarter of 2000 were $19.0
million ($.25 per share) compared with $15.2 million ($.20 per share) for the
comparable period in 1999.
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 January 31, 2000, the contract settlement cost per share exceeded the
current market price per share by $12.10.
Although the ultimate choice of settlement option resides with the Company, if
the price of the Company's common stock falls to certain levels, as defined in
the contract, the holder of the contract has the right to require the Company to
settle the contract.
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 January 31, 2000 and October 31, 1999, the Company
had forward foreign exchange contracts of less than eighteen months duration, to
exchange principally Euros, Australian Dollars, Canadian Dollars, Dutch Guilders
and German Marks for U.S. Dollars. The total gross notional amount of these
contracts at January 31, 2000 and October 31, 1999 was $100 million and $124
million, respectively. Forward contracts to purchase foreign currency
represented $99 million and $122 million and forward contracts to sell foreign
currency represented $1 million and $2 million, at January 31, 2000 and October
31, 1999, respectively.
15
<PAGE> 17
THE YEAR 2000 ISSUE - READINESS DISCLOSURE - UPDATE
The Year 2000 issue is the result of computer systems and other equipment with
processors that use only two digits to identify a year rather than four. If not
corrected, many computer applications and date sensitive equipment could fail or
create erroneous results before, during and after the Year 2000. The Company
utilizes information technology ("IT") systems, such as, computer networking
systems and non-IT devices, which may contain embedded circuits, such as those
which may be found in building security equipment. Both IT systems and non-IT
devices are subject to potential failure due to the Year 2000 issue.
The Company developed and implemented a plan to achieve Year 2000 readiness (the
"Y2K Program"). The Y2K Program was implemented through (1) identification and
assessment, (2) remediation and testing and (3) contingency planning.
Transitioning into Year 2000, the Company did not experience any material issues
and all of its computer systems are operating normally. The Company will
continue to monitor its systems on an ongoing basis for the immediate future. As
of March 16, 2000, the Company has not been made aware of any Year 2000
disruptions for which it is responsible at any of its various project sites
throughout the world.
With respect to systems and equipment provided to clients, the Company does not
control the upgrades, additions and/or changes made by its clients or by others
for its clients, to those systems and equipment. Accordingly, the Company does
not provide any assurances or current information about Year 2000 capabilities
with respect to past projects. Each project is performed under an agreement with
the Company's client, which describes the extent of the Company's obligations
and warranties and the limitations that may apply.
The Company used both internal and external resources in its Y2K Program. The
Company estimates that, from 1996 to date, it has spent approximately $26
million on the Year 2000 issue, including $.6 million during the first quarter
of fiscal year 2000. The estimate was derived utilizing numerous assumptions,
including the assumption that the Company has completed its Y2K Program, and any
further Y2K activities will be provided by its third party suppliers without
cost to the Company. The Company estimates its direct costs for the Y2K Program
(costs necessary to assess and remediate existing systems) are approximately
$15 million. In addition, the Company has accelerated its program of replacing
out-of-date personal computers and operating systems, regardless of whether or
not such computers and systems were Year 2000 compliant. The costs associated
with those replacements are estimated at $11 million. The Y2K Program has been
funded under the Company's general IT and operating budgets. The Year 2000
expenditures have been expensed and deducted from income when incurred, except
for costs incurred to acquire new software developed or obtained to replace old
software, which may be capitalized and amortized under generally accepted
accounting principles. The above amounts are the Company's best estimate given
other systems initiatives that were ongoing irrespective of the Y2K Program
(such as the migration to Windows NT and related hardware upgrades).
The Company has developed contingency plans to address the Year 2000 issues that
may pose a significant risk to its ongoing operations and existing projects,
including, but not limited to, the Year 2000 compliance of systems and equipment
provided by suppliers. Due to the large number
16
<PAGE> 18
of variables involved with estimating resultant lost revenues should there be a
third party failure, the Company cannot provide an estimate of damage if any of
the scenarios were to occur. There can be no assurance that any contingency
plans implemented by the Company would be adequate to meet the Company's needs
without materially impacting its operations, that any such plan would be
successful or that the Company's results of operations would not be materially
and adversely affected by the delays and inefficiencies inherent in conducting
operations in an alternative manner.
The Company believes that its most reasonably likely worst case Year 2000
scenarios would relate to problems with the equipment and systems supplied by
third parties. If such equipment or systems were to fail at any location, the
Company's operations at that location could be shut down or disrupted until
compliant equipment or systems could be supplied. Depending on the location and
the delivery time of compliant equipment or systems, the Company could suffer
delays in fulfilling its commitments. The Company expects to mitigate that risk
through the use of alternate suppliers. However, delays could materially
adversely impact the Company's receipt of payments due from customers. Further,
there is the possibility that significant litigation may occur due to business
and equipment failures caused by the Year 2000 issue. It is uncertain whether,
or to what extent, the Company may be affected by such litigation. No assurance
can be given that the Company will achieve all aspects of Year 2000 readiness
and the failure to achieve Year 2000 readiness could materially and adversely
affect the Company's results from operations.
EURO CONVERSION - UPDATE
Given the nature and size of the Company's European operations, the Company does
not perceive the conversion to the Euro as a significant risk area. The
Company's businesses operate under long-term contracts, typically denominated in
U.S. Dollars, compared with more traditional retail or manufacturing
environments. If required, the Company is currently able to bid, price and
negotiate contracts using the Euro. The Company's treasury function is also
capable of operating with the Euro. Specifically, the Company is able to:
establish bank accounts; obtain financing; obtain bank guarantees or letters of
credit; trade foreign currency; and hedge transactions. The Company's ongoing
Euro conversion effort will be primarily concentrated in the systems area.
Conversion to the Euro impacts the Company's subsidiaries in The Netherlands,
Germany, Belgium and Spain. All subsidiaries use a standard accounting system
and all reside in the same database. The Company's conversion plan is to
maintain the legacy database for historical reference and to create a new
database with the Euro as the base currency. The new database will permit
transactions to take place in both legacy currencies and the Euro as well as
perform prescribed rounding calculations. The new Euro-based database is
available and testing is in progress. Full conversion is anticipated to be
complete by the start of fiscal year 2001.
The Company has not incurred and it does not expect to incur any significant
costs from the continued conversion to the Euro, including any currency risk,
which could significantly affect the Company's business, financial condition and
results of operations.
17
<PAGE> 19
The Company has not experienced any significant operational disruptions to date
and does not currently expect the continued conversion to the Euro to cause any
significant operational disruptions, including the impact of systems operated by
others.
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.
18
<PAGE> 20
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
Three Months Ended January 31, 2000 and 1999
UNAUDITED
$ in millions 2000 1999
- ------------- --------- ---------
Backlog - beginning of period $ 9,142.0 $12,645.3
New awards 2,363.9 1,700.9
Adjustments and cancellations, net 281.8 (391.5)
Work Performed (2,549.0) (2,890.2)
--------- ---------
Backlog - end of period $ 9,238.7 $11,064.5
========= =========
19
<PAGE> 21
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Special Retention Program between Fluor Corporation and James
C. Stein dated September 24, 1999.
27.1 Financial Data Schedule as of and for the three months ended
January 31, 2000.
(b) Reports on Form 8-K.
None.
20
<PAGE> 22
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: March 16, 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
21
<PAGE> 23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Special Retention Program between Fluor Corporation and
James C. Stein dated September 24, 1999.
27.1 Financial Data Schedule as of and for the three months ended
January 31, 2000.
<PAGE> 1
EXHIBIT 10.1
September 24, 1999
Mr. Jim Stein
President and Chief Executive Officer
Fluor Global Services
Dear Jim,
It is my pleasure to inform you that at the December 1998 Organization and
Compensation Committee meeting, the Board of Directors of Fluor Corporation (the
"Company") selected you to participate in a Retention Program. The amount of the
retention award was $2,750,000. At your request the award has been structured as
follows:
AWARD AMOUNT: $2,750,000
RETENTION PERIOD: October 1, 1998 through October 31, 2001
RETENTION AGREEMENT: The Award Amount is divided between the following
two components:
HOUSING
You have previously been provided with a personal
loan of $1,006,841 secured by a deed of trust on
your residence. The loan provides for an interest
rate of 4.52%, compounded annually with a balloon
payment of the entire amount due on termination
of employment. The loan presently states that it
is subject to acceleration in the event of your
termination of employment for any reason prior to
October 31, 2001. The Company will forgive the
loan including accrued interest in its entirety
(a) if you remain continuously employed by the
Company until October 31, 2001, or (b) if your
employment terminates prior to that date due to
(i) death, (ii) permanent and total disability,
(iii) a Company-initiated termination for any
reason other than for-cause or (iv) following a
Change of Control. If your employment with the
Company terminates for
<PAGE> 2
Jim Stein
September 24, 1999
Page 2
any other reason prior to October 31, 2001
(including, without limitation, your voluntary
termination or a termination for cause) then this
loan shall remain in effect in accordance with
its terms.
For purposes hereof, the term "Change of Control"
shall be deemed to have occurred if, (a) a third
person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934,
acquires shares of the Company having 25% or more
of the votes that may be cast for the election of
directors of the Company or (b) as a result of
any cash tender or exchange offer, merger or
other business combination, or any combination of
the preceding (a "transaction"), the persons who
are the directors of the Company before the
transaction shall cease to constitute a majority
of the Board of Directors of the Company or any
successor thereto.
ACCRUAL TO EXECUTIVE DEFERRAL COMPENSATION
PROGRAM ("EDCP")
You may earn $1,743,159, said amount to be
adjusted as provided below, if you remain
continuously employed by the Company until on or
after October 31, 2001 (the "EDCP Accrual").
During the period from October 1, 1998 to the
date upon which the EDCP Accrual vests (if at
all), you will also be entitled to invest the
EDCP Accrual by selecting one or more of the
crediting options contained in the EDCP.
Thereafter, the amount of your EDCP Accrual, if
vested, shall be adjusted based upon the
investment return that you would have otherwise
received had the EDCP Accrual been actually
earned as of October 1, 1998 and credited in your
EDCP account based upon your chosen crediting
option through the date of vesting. If no
crediting option is indicated, the EDCP Accrual
will be automatically credited as if you chose
the Money Market crediting option under the EDCP.
The EDCP Accrual, as adjusted, will vest and be
credited to your existing Company EDCP account
(a) if you remain continuously employed by the
Company until October 31, 2001
<PAGE> 3
Jim Stein
September 24, 1999
Page 3
or (b) if your employment terminates prior to
that date due to (i) death, (ii) permanent and
total disability, (iii) a Company-initiated
termination other than on a for-cause basis or
(iv) following a Change of Control. If in the
event your employment terminates for any reason
prior to any such vesting date for any other
reason (including, without limitation, your
voluntary termination or a termination for
cause), then the EDCP Accrual, as adjusted, will
be forfeited.
Please indicate your acknowledgment of the terms of the letter by signing in the
space provided and returning the original to me for your employee records. You
should also retain a copy for your file.
If you should have any questions, please give me a call at (949) 349-5435.
Sincerely,
Philip J. Carroll
AGREED BY: AGREED BY:
- ----------------------------------- ---------------------------------------
PHILIP J. CARROLL DATE JAMES C. STEIN DATE
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