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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 1-16129
FLUOR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-0927079
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
One Enterprise Drive, Aliso Viejo, CA 92656
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(Address of principal executive offices)
(949) 349-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2002, there were 80,660,619 shares of common stock outstanding.
FLUOR CORPORATION
FORM 10-Q
JUNE 30, 2002
TABLE OF CONTENTS PAGE
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Part I: Financial Information
Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2002
and 2001............................................................................... 2
Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2002
and 2001............................................................................... 3
Condensed Consolidated Balance Sheet at June 30, 2002 and
December 31, 2001...................................................................... 4
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 2002 and 2001........................................................... 5
Notes to Condensed Consolidated Financial Statements................................... 6
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
PART I: FINANCIAL INFORMATION
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended June 30, 2002 and 2001
UNAUDITED
$ in thousands, except per share amounts 2002 2001
- -----------------------------------------------------------------------------------
REVENUES $ 2,536,113 $ 2,227,360
COSTS AND EXPENSES
Cost of revenues 2,439,409 2,137,165
Corporate administrative and general expense 31,606 35,127
Interest expense 2,462 9,193
Interest income (4,310) (5,251)
---------------------------
Total Costs and Expenses 2,469,167 2,176,234
---------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES 66,946 51,126
INCOME TAX EXPENSE 23,935 16,007
---------------------------
EARNINGS FROM CONTINUING OPERATIONS 43,011 35,119
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAXES (1,435) (880)
GAIN ON DISPOSAL, NET OF TAXES 1,399 --
---------------------------
NET EARNINGS $ 42,975 $ 34,239
===========================
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.54 $ 0.45
DISCONTINUED OPERATIONS -- (0.01)
---------------------------
NET EARNINGS $ 0.54 $ 0.44
===========================
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.54 $ 0.44
DISCONTINUED OPERATIONS -- (0.01)
---------------------------
NET EARNINGS $ 0.54 $ 0.43
===========================
SHARES USED TO CALCULATE EARNINGS (LOSS) PER SHARE
BASIC 79,464 78,138
===========================
DILUTED 80,359 79,878
===========================
DIVIDENDS DECLARED PER SHARE $ 0.16 $ 0.16
===========================
See Accompanying Notes
2
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2002 and 2001
UNAUDITED
$ in thousands, except per share amounts 2002 2001
- -----------------------------------------------------------------------------------
REVENUES $ 5,042,722 $ 4,138,584
COSTS AND EXPENSES
Cost of revenues 4,859,454 3,955,851
Corporate administrative and general expense 65,075 97,920
Interest expense 4,647 19,538
Interest income (7,025) (8,187)
---------------------------
Total Costs and Expenses 4,922,151 4,065,122
---------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES 120,571 73,462
INCOME TAX EXPENSE 41,379 21,859
---------------------------
EARNINGS FROM CONTINUING OPERATIONS 79,192 51,603
EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAXES 2 (6,172)
GAIN ON DISPOSAL, NET OF TAXES 4,971 --
---------------------------
NET EARNINGS $ 84,165 $ 45,431
===========================
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 1.00 $ 0.67
DISCONTINUED OPERATIONS 0.06 (0.08)
---------------------------
NET EARNINGS $ 1.06 $ 0.59
===========================
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.99 $ 0.66
DISCONTINUED OPERATIONS 0.06 (0.08)
---------------------------
NET EARNINGS $ 1.05 $ 0.58
===========================
SHARES USED TO CALCULATE EARNINGS (LOSS) PER SHARE
BASIC 79,324 76,671
===========================
DILUTED 80,135 78,431
===========================
DIVIDENDS DECLARED PER SHARE $ 0.32 $ 0.32
===========================
See Accompanying Notes
3
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2002 and December 31, 2001
UNAUDITED
June 30, December 31,
$ in thousands 2002 2001 *
- -----------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 836,264 $ 572,654
Accounts and notes receivable 506,031 565,525
Contract work in progress 391,510 393,380
Deferred taxes 208,005 210,104
Inventory and other current assets 84,495 109,664
---------------------------------
Total current assets 2,026,305 1,851,327
Assets of discontinued operations 119,335 208,951
Property, plant and equipment (net of accumulated
depreciation of $324,251 and $293,374, respectively) 483,735 508,104
Investments and goodwill, net 175,865 165,610
Deferred taxes 55,735 66,714
Other 345,152 341,771
---------------------------------
$ 3,206,127 $ 3,142,477
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 439,652 $ 382,528
Short-term debt 13,522 38,442
Advances from affiliate 505,013 539,414
Advance billings on contracts 370,897 423,996
Accrued salaries, wages and benefits 293,008 302,817
Other accrued liabilities 234,669 175,536
---------------------------------
Total current liabilities 1,856,761 1,862,733
Liabilities of discontinued operations 46,576 58,111
Long-term debt due after one year 17,604 17,594
Noncurrent liabilities 425,501 414,773
Contingencies and commitments
Shareholders' equity
Capital stock
Preferred - authorized 20,000,000 shares without par
value; none issued
Common - authorized 150,000,000 shares of $0.01 par
value; issued and outstanding - 80,646,143 and
80,106,715 shares, respectively 806 801
Additional capital 369,869 352,960
Unamortized executive stock plan expense (21,535) (22,779)
Accumulated other comprehensive loss (55,954) (49,805)
Retained earnings 566,499 508,089
---------------------------------
Total shareholders' equity 859,685 789,266
---------------------------------
$ 3,206,127 $ 3,142,477
==================================
* Amounts at December 31, 2001 have been derived from audited financial
statements.
See Accompanying Notes
4
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2002 and 2001
UNAUDITED
$ in thousands 2002 2001
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 84,165 $ 45,431
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation and amortization
Continuing operations 39,382 41,538
Discontinued operations -- 20,676
Special provision, net of cash payments -- (3,868)
Deferred taxes 11,513 5,480
Changes in operating assets and liabilities, excluding
effects of business acquisitions/dispositions 110,694 156,305
Equity in earnings of investees (1,329) (6,013)
Other, net (11,849) 16,257
------------------------
Cash provided by operating activities 232,576 275,806
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Continuing operations (36,977) (79,648)
Discontinued operations (10,489) (22,746)
Investments, net 14,235 9,299
Proceeds from sale of property, plant and equipment 56,978 31,916
Proceeds from sale of subsidiaries 50,955 --
Other, net (1,062) 6,109
------------------------
Cash provided (utilized) by investing activities 73,640 (55,070)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (25,755) (12,455)
Decrease in short-term borrowings (24,653) (188,801)
Proceeds from sale/leaseback transaction -- 127,000
Stock options exercised 11,058 143,745
Purchases of common stock (2,381) --
Other, net (875) (1,064)
------------------------
Cash provided (utilized) by financing activities (42,606) 68,425
------------------------
Increase in cash and cash equivalents 263,610 289,161
Cash and cash equivalents at beginning of period 572,654 21,850
------------------------
Cash and cash equivalents at end of period $ 836,264 $ 311,011
========================
See Accompanying Notes
5
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 December 31, 2001 annual report on Form
10-K. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for the
three and six months ended June 30, 2002 are not necessarily indicative of
results that can be expected for a full year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
recurring accruals) which, in the opinion of the company, are necessary to
present fairly its consolidated financial position at June 30, 2002 and its
consolidated results of operations and cash flows for the three and six
months ended June 30, 2002 and 2001. In the six months ended June 30, 2002,
the company recognized certain dispute resolution provisions to reflect
changes in estimate with respect to matters that are in mediation or
arbitration or, in some cases, the subject of pending litigation between
the company and certain clients.
Certain 2001 amounts have been reclassified to conform with the 2002
presentation.
(2) Short-term debt comprises the following:
June 30, December 31,
$ in thousands 2002 2001
-----------------------------------------------------------------
Notes payable to banks $ 13,522 $ 38,175
Trade notes payable -- 267
---------------------------
$ 13,522 $ 38,442
===========================
(3) Advances from affiliate relate to cash received by Duke/Fluor Daniel, a
joint venture entity, from advance billings on contracts, which are made
available to the partners. Such advances are classified as an operating
liability of the company.
(4) The components of comprehensive income, net of related tax, are as follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ---------------------
$ in thousands 2002 2001 2002 2001
-----------------------------------------------------------------------------------
Net earnings $ 42,975 $ 34,239 $ 84,165 $ 45,431
Foreign currency translation
adjustment (2,500) 1,158 (6,149) (3,619)
---------------------- ---------------------
Comprehensive income $ 40,475 $ 35,397 $ 78,016 $ 41,812
===================== =====================
(5) Cash paid for interest was $5.6 million and $25.6 million for the
six-month periods ended June 30, 2002 and 2001, respectively. Income tax
payments, net of receipts, were $23.7 million and $24.4 million during the
six-month periods ended June 30, 2002 and 2001, respectively.
6
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) Operations are aligned into five industry segments: Energy and Chemicals,
Industrial and Infrastructure, Power, Global Services and Government
Services. The Energy and Chemicals segment provides engineering and
construction professional services for the upstream oil and gas production,
refining, petrochemical, and specialty and fine chemicals. The Industrial
and Infrastructure segment provides engineering and construction
professional services for manufacturing and life sciences facilities,
commercial and institutional buildings, mining, telecommunication and
transportation projects and other facilities. The Power segment provides
professional services to engineer, construct and maintain power generation
facilities. Services provided by the Power segment are primarily conducted
through two joint venture groups; Duke/Fluor Daniel, 50 percent owned
partnerships with Duke Energy and ICA/Fluor, 49 percent owned joint
ventures with Grupo ICA, a Mexican company. The Global Services segment
includes operations and maintenance, equipment and temporary staffing
services and the company's global sourcing and procurement services
business. The Government Services segment provides project management
services to the United States government.
Operating information by segment for the company's continuing operations
are as follows for the three and six months ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -------------------------------
$ in millions 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------
External revenue
Energy and Chemicals $ 891.4 $ 637.4 $ 1,678.3 $ 1,183.1
Industrial and Infrastructure 599.4 566.7 1,086.0 1,084.9
Power 591.7 477.3 1,332.7 790.2
Global Services 242.9 333.3 522.3 663.0
Government Services 210.7 205.9 423.4 404.9
Corporate and Other -- 6.8 -- 12.5
------------------------------- -------------------------------
Total external revenue $ 2,536.1 $ 2,227.4 $ 5,042.7 $ 4,138.6
=============================== ===============================
Operating profit
Energy and Chemicals $ 29.1 $ 40.5 $ 61.1 $ 69.3
Industrial and Infrastructure (6.0) 18.6 9.0 40.2
Power 44.2 12.3 57.1 26.9
Global Services 23.5 13.0 44.9 35.9
Government Services 5.9 5.8 11.2 10.4
------------------------------- -------------------------------
Total operating profit $ 96.7 $ 90.2 $ 183.3 $ 182.7
=============================== ===============================
7
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(6) (Continued)
A reconciliation of the segment information to consolidated amounts for the
three and six months ended June 30, 2002 and 2001 is as follows:
Three Months Ended Six Months Ended
June 30 June 30
--------------------- --------------------
$ in millions 2002 2001 2002 2001
------------------------------------------------------------------------------------
Total segment operating profit $ 96.7 $ 90.2 $ 183.3 $ 182.7
Corporate administrative
and general expense 31.6 35.1 65.1 97.9
Interest (income) expense, net (1.8) 4.0 (2.4) 11.3
--------------------- --------------------
Earnings from continuing
operations before taxes $ 66.9 $ 51.1 $ 120.6 $ 73.5
===================== ======================
(7) In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). Under SFAS 142, goodwill is no longer amortized but
will be subject to annual impairment tests. The company adopted SFAS 142
effective January 1, 2002 and ceased amortizing goodwill. Earnings from
continuing operations for the three and six months ended June 30, 2001
include $1.0 million and $1.8 million ($0.01 and $0.02 per diluted share),
respectively, of amortization expense. During the first quarter of 2002,
the company initiated the first of the required impairment tests of
goodwill associated with continuing operations and has determined that none
of the goodwill is impaired. Goodwill at June 30, 2002 was $21.4 million.
(8) In September 2001, the Board of Directors approved a plan to dispose of
certain non-core operations of the company's construction equipment and
temporary staffing operations. An active program to consummate such
disposal has been initiated and is expected to be completed by the end of
2002. Management's plans call for these operations to be disposed of by
sale of the operating unit or of the related assets. As of June 30, 2002,
the remaining operations to be disposed of include the following:
. Two dealership operations of AMECO
. Final liquidation of assets at AMECO subsidiaries in Peru and Argentina
. TRS, except for the onsite recruiting services business that supports
Fluor projects.
In the first quarter of 2002, the sale of S&R Equipment Company, one of the
dealership operations of AMECO, was completed resulting in cash proceeds of
$45.9 million and recognition of an excess of proceeds over the carrying
value, net of taxes, of approximately $3.0 million. During the second
quarter of 2002, Ambit Technology, Inc., the Australian operations of the
temporary staffing operations of TRS, was sold, resulting in cash proceeds
of $5.1 million and recognition of an excess of proceeds over the carrying
value, net of taxes, of approximately $2.7 million.
8
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(8) (Continued)
The revenues and earnings (loss) from discontinued operations for the three
and six months ended June 30, 2002 and 2001 are as follows:
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------
$ in thousands 2002 2001 2002 2001
------------------------------------------------------------------------------
Revenue
Dealership operations $ 42,233 $ 72,114 $ 91,427 $ 139,565
Other equipment operations 1,850 2,557 6,077 6,031
Temporary staffing
operations 21,979 36,399 47,151 77,069
-----------------------------------------------
Total revenue $ 66,062 $ 111,070 $ 144,655 $ 222,665
-----------------------------------------------
Earnings (loss) from
discontinued operations
Dealership operations $ 259 $ 2,438 $ 2,789 $ 1,328
Other equipment operations (47) (466) 166 (1,746)
GlobEquip, LLC -- (1,592) -- (4,773)
Temporary staffing
operations (2,465) (1,523) (3,018) (3,227)
-----------------------------------------------
Loss from discontinued
operations before tax (2,253) (1,143) (63) (8,418)
Income tax benefit (818) (263) (65) (2,246)
-----------------------------------------------
Earnings (loss) from
discontinued operations $ (1,435) $ (880) $ 2 $ (6,172)
===============================================
Gain on disposal before tax $ 1,334 $ -- $ 6,461 $ --
Income tax expense (benefit) (65) -- 1,490 --
-----------------------------------------------
Gain on disposal $ 1,399 $ -- $ 4,971 $ --
===============================================
The net assets of discontinued operations consisted of the following:
June 30, December 31,
$ in thousands 2002 2001
---------------------------------------------------------------------------
Accounts & notes receivable $ 24,686 $ 47,996
Inventories & other assets 35,111 54,272
Property, plant & equipment, net 59,538 106,683
----------------------------
Total assets of discontinued operations $ 119,335 $ 208,951
============================
Accounts and notes payable $ 18,978 $ 21,090
Accrued and other liabilities 27,598 37,021
----------------------------
Total liabilities of discontinued operations $ 46,576 $ 58,111
============================
9
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(9) The company and certain of its subsidiaries are involved in litigation in
the ordinary course of business. In addition, the company and certain of
its subsidiaries are contingently liable for commitments and performance
guarantees arising in the ordinary course of business. While we cannot
predict the outcome of these matters, in the company's opinion and based on
reports of counsel, any liability arising from these matters individually
and in the aggregate will not have a material adverse effect upon the
consolidated financial position, or results of operations of the company,
after giving effect to provisions already recorded.
Claims arising from engineering and construction contracts have been made
against the company by clients, and the company has made certain claims
against clients for costs incurred in excess of the contract provisions.
The company recognizes significant claims for recovery of incurred costs
when it is probable that the claim will result in additional contract
revenue and when the amount of the claim can be reliably estimated.
Recognized claims against clients amounted to $60.4 million at June 30,
2002 and $84.1 million at December 31, 2001. While amounts ultimately
realized from claims could differ materially from the balances included in
the financial statements, the company does not expect that claim recoveries
will have a material effect on its consolidated financial position or
results of operations.
VERDE GOLD
The company constructed the Verde Gold ore processing facility in 1996 on a
lump sum, turnkey basis. In July 1999, Compania Minera Maricunga (CMM), the
project owner, commenced arbitration proceedings against certain
subsidiaries of the company. CMM alleged that Fluor's design and
construction of the facility was defective. In August 1999, the company
filed a counterclaim against CMM to recover, among other things, unpaid
contract balances, as well as compensation for out of scope services.
From July 1999 to the present, the Chilean arbitrator was presented with
extensive factual and legal briefings, as well as fact witness testimony.
In December 2000, the arbitrator selected an independent U.S. technical
evaluator of all engineering and construction issues who opined that Fluor
owed CMM less than $2 million. Notwithstanding the independent expert's
report, the arbitrator rendered an award to CMM for $20 million plus
interest, which currently totals approximately $3 million. The company is
contesting a substantial portion of this award. Partial payment of the
award will occur in the third quarter of 2002 with the balance being
subject to the outcome of the appeal. The company has provided notice to
all applicable insurance carriers of the arbitration award. The company
anticipates recovering a substantial portion of any amount awarded to CMM
from its available insurance coverage.
During the second quarter of 2002, the company recognized a loss provision
of $20 million representing the arbitration award plus applicable interest,
less a $3 million reserve provided in prior years. In addition, the company
has recorded $6 million in expected insurance recoveries. The net impact on
results of operations is a charge of $14 million.
10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MURRIN MURRIN
Disputes have arisen between Fluor Australia and its client, Anaconda
Nickel, over the Murrin Murrin Nickel Cobalt project located in Western
Australia. Anaconda's primary contention is that the process design is
defective and incapable of proper operation. Anaconda also contends that
the plant suffers from numerous other defects and that it has suffered
consequential losses, such as loss of profit, for which it seeks payment
from the company. Fluor vigorously disputes and denies Anaconda's
allegations.
Both parties have initiated the dispute resolution process under the
contract. The first phase of the arbitration hearing was completed in May
2002. A decision on the first phase is now expected in late summer of 2002.
If, and to the extent that, these problems are ultimately determined to be
the responsibility of the company, the company anticipates recovering a
substantial portion of this amount from available insurance. Expected
proceeds from insurance recovery, including legal fees, and amounts due
from Anaconda, total approximately $90 million as of June 30, 2002.
ASBESTOS MATTERS
The company is a defendant in various lawsuits wherein plaintiffs allege
exposure to asbestos fibers and dust due to work that the company may have
performed at various locations. The company has substantial third party
insurance coverage to cover a significant portion of existing and any
potential costs, settlements or judgements. No material provision has been
made for any present or future claims and the company does not believe that
the outcome of any actions will have a material adverse impact on its
financial position, results of operations or cash flows. The company has
resolved a number of cases to date, which in the aggregate have not had a
material adverse impact.
SECURITIES CLASS ACTION LITIGATION
U.S.D.C., CENTRAL DISTRICT, SOUTHERN DIVISION, CALIFORNIA
Plaintiffs in three separate lawsuits are alleging that certain Fluor
officers and directors violated the Securities Exchange Act of 1934 by
providing false or misleading statements about the company's business and
prospects. These complaints purport to be class action complaints brought
on behalf of purchasers of the company's stock during the period from May
22, 1996 through February 18, 1997. The company's initial motion to dismiss
the action was granted by the court with leave to amend. The plaintiffs
filed their amended complaint and the company moved the court to dismiss
the new amended complaint period. The Court has now granted the company's
motion and dismissed plaintiff's action without leave to amend on July 10,
2002. Plaintiffs have filed notice of their intention to appeal the
dismissal.
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 December 31, 2001 annual
report on Form 10-K. For purposes of reviewing this document, "operating profit"
is calculated as revenues less cost of revenues excluding: special provision;
corporate administrative and general expense; interest expense; interest income;
domestic and foreign income taxes; other non-operating income and expense items;
and gain or loss on discontinued operations.
FORWARD-LOOKING INFORMATION
Statements regarding the company's projected earning levels, new awards and
backlog levels and the implementation of strategic initiatives and
organizational changes are forward looking in nature. These forward-looking
statements reflect current analysis of existing information. As a result,
caution must be exercised in relying on forward-looking statements. Due to known
and unknown risks, the company's actual results may differ materially from its
expectations or projections. Factors potentially contributing to such
differences include, among others:
.. Changes in global business, economic, political and social conditions;
.. The company's failure to receive anticipated new contract awards;
.. Customer cancellations of, or scope adjustments to, existing contracts;
.. Difficulties or delays incurred in the execution of construction contracts
resulting in cost overruns or liabilities;
.. A failure to obtain favorable results in existing or future litigation or
disputes;
.. Recoveries from our insurance providers are less than anticipated;
.. Customer delays or defaults in making payments;
.. Difficulties and delays incurred in the implementation of strategic
initiatives;
.. The potential impact of certain tax matters resulting from the company's
reverse spin-off transaction consummated November 20, 2000 involving Massey
Energy Company;
.. The impact of past and future environmental, health and safety regulations and
lawsuits; and
.. Competition in the global engineering and construction industry.
While most risks affect only future costs or revenues anticipated by the
company, some risks may relate to accruals that have already been reflected in
earnings. The company's failure to receive payments of accrued amounts could
result in a charge against future earnings.
Additional information concerning these and other factors can be found in press
releases as well as periodic filings with the Securities and Exchange
Commission, including the discussion under the heading "Item 1. Business-Other
Matters-Company Business Risks" in the company's Form 10-K filed March 21, 2002.
These filings are available either publicly or upon request from Fluor's
Investor Relations Department: (949) 349-3909. The company disclaims any intent
or obligation to update its forward-looking statements.
12
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF CONTINUING OPERATIONS
Revenues from continuing operations for the three and six months ended June 30,
2002 were $2,536.1 million and $5,042.7 million, respectively, compared with
$2,227.4 million and $4,138.6 million for the 2001 comparison periods. Earnings
from continuing operations for the three and six months ended June 30, 2002 were
$43.0 million and $79.2 million, respectively, compared with $35.1 million and
$51.6 million, respectively, for the three and six months ended June 30, 2001.
Because of significant fluctuations in the trading price of the company's common
stock during 2001, operating results for the three and six months ended June 30,
2001 were impacted by stock based compensation charges of $1.9 million after tax
($0.02 per diluted share) and $18.1 million after tax ($0.23 per diluted share),
respectively. The impact of stock based compensation in the first half of 2002
was not material.
Consolidated new awards for the three and six months ended June 30, 2002
decreased 20 percent and 9 percent to $2.0 billion and $4.6 billion,
respectively, compared with $2.5 billion and $5.0 billion in the 2001 comparison
periods. Consolidated backlog at June 30, 2002 increased 2 percent to $10.9
billion compared to $10.6 billion at June 30, 2001. Approximately 33 percent and
30 percent of consolidated new awards for the three and six months ended June
30, 2002, respectively, were for projects located outside of the United States.
As of June 30, 2002, approximately 39 percent of consolidated backlog relate to
international projects. 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.
ENERGY AND CHEMICALS
Revenues and operating profit for the Energy and Chemicals segment are
summarized as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------ ---------------------
$ in millions 2002 2001 2002 2001
--------------------------------------------------------------------
Revenues $ 891.4 $ 637.4 $ 1,678.3 $ 1,183.1
Operating profit 29.1 40.5 61.1 69.3
Revenues increased 40 percent and 42 percent in the three and six months ended
June 30, 2002, respectively, compared with the 2001 periods.
Operating profit in the second quarter last year was unusually strong reflecting
significant performance incentives on project completions. Expressed as
percentages of revenues, the operating profit margin for the three and six
months ended June 30, 2002 was 3.3 percent and 3.6 percent compared with 6.4
percent and 5.9 percent in the 2001 comparable periods. The lower margins in
2002 reflect an increasing proportion of projects that have moved from
higher-margined front-end studies and preliminary engineering work to the early
execution stage.
13
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Hamaca Crude Upgrader Project located in Jose, Venezuela is a $1
billion lump sum project of Grupo Alvica ("GA"), a joint venture including Fluor
Daniel, Technofluor C.A. and Inelectra, to design and build a petroleum upgrader
for a consortium of owners called Petrolera Ameriven ("PA") including PDVSA,
Chevron/Texaco and Phillips Petroleum. Two issues were referred to arbitration
in December 2001: one is responsibility for costs arising from the site labor
agreement for 2000 called "Acta Convenio" and two, modifications and extra work
arising from differing site soil conditions. The fundamental cost differences
between the earlier labor agreement (in 1998) and the 2000 Acta Convenio will be
heard in April 2003. The changed site soil conditions issue (collapsible soils
on site) is the subject of hearings in November 2002 on both schedule and cost
issues. There is no cross-claim by PA in the arbitration.
The client has conditionally accepted responsibility relating to the soil
conditions and certain incurred costs have been paid. Substantial additional
costs are expected to be incurred as the project progresses and resolution of
outstanding issues concerning the total costs to be reimbursed under the soil
conditions change order are yet to be determined. The company is accounting for
the additional costs incurred for the soil conditions matter as additional
revenue as costs are incurred. Incurred costs associated with Acta Convenio are
being deferred and will be recognized in revenue when a change order is
approved. If future costs relating to Acta Convenio or soil conditions are
determined to be not fully recoverable the company could face reduced profits or
losses on this project.
New awards for the three and six months ended June 30, 2002 were $752.7 million
and $1,185.7 million, respectively, compared with $545.2 million and $1,181.9
million for the 2001 comparison periods. New awards in the second quarter of
2002 included an oil and gas rebuild project and a significant scope addition to
a major oil project.
Backlog at June 30, 2002 was $3,314.7 million, level with $3,309.3 million a
year ago.
INDUSTRIAL AND INFRASTRUCTURE
Revenues and operating profit for the Industrial and Infrastructure segment are
summarized as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------ ---------------------
$ in millions 2002 2001 2002 2001
----------------------------------------------------------------------
Revenues $ 599.4 $ 566.7 $ 1,086.0 $ 1,084.9
Operating profit (6.0) 18.6 9.0 40.2
Revenues for the second quarter increased 6 percent compared to the 2001 period.
The operating loss for the three months ended June 30, 2002 includes $26 million
in dispute resolution provisions. Excluding these provisions, operating profit
for the segment increased 8 percent to $20 million.
The major portion of the dispute resolution provisions relates to an unfavorable
arbitration ruling on the Verde Gold project in Chile. During the second quarter
of 2002, the company recognized a loss provision of $20 million representing the
arbitration award plus applicable interest, less a $3 million reserve provided
in prior years. The company anticipates recovering a portion of the award from
available insurance and has recorded $6 million in expected insurance
recoveries. The net impact on results of operations is a charge of $14 million.
14
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The company constructed the Verde Gold ore processing facility in 1996 on a lump
sum, turnkey basis. In July 1999, Compania Minera Maricunga (CMM), the project
owner, commenced arbitration proceedings against certain subsidiaries of the
company. CMM alleged that Fluor's design and construction of the facility was
defective. In August 1999, the company filed a counterclaim against CMM to
recover, among other things, unpaid contract balances, as well as compensation
for out of scope services.
From July 1999 to the present, the Chilean arbitrator was presented with
extensive factual and legal briefings, as well as fact witness testimony. In
December 2000, the arbitrator selected an independent U.S. technical evaluator
of all engineering and construction issues who opined that Fluor owed CMM less
than $2 million. Notwithstanding the independent expert's report, the arbitrator
rendered an award to CMM for $20 million plus interest, which currently totals
approximately $3 million. The company is contesting a substantial portion of
this award. Partial payment of the award will occur in the third quarter of 2002
with the balance being subject to the outcome of the appeal. The company has
provided notice to all applicable insurance carriers of the arbitration award.
The company anticipates recovering a substantial portion of any amount awarded
to CMM from its available insurance coverage.
New awards for the Industrial and Infrastructure segment in the three and six
months ended June 30, 2002 were $742.0 million and $1,458.4 million,
respectively, compared with $537.8 million and $1,078.3 million for the 2001
comparison periods. The increase in new awards is primarily due to continuing
strength in life sciences and contributed to a 26 percent increase in backlog to
$3,379.1 million compared with $2,679.2 million in the second quarter last year.
POWER
Revenues and operating profit for the Power segment are summarized as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------ -------------------
$ in millions 2002 2001 2002 2001
--------------------------------------------------------------------
Revenues $ 591.7 $ 477.3 $ 1,332.7 $ 790.2
Operating profit 44.2 12.3 57.1 26.9
Revenues for the three months ended June 30, 2002 increased 24 percent and
operating profit more than tripled compared with the 2001 period. As a percent
of revenues, operating profit in the second quarter improved to 7.5 percent
compared with 2.6 percent in the prior period. The operating profit improvement
is due to the successful completion of 10 projects during the quarter, eight of
which were completed an average of 28 days ahead of schedule. The second quarter
tends to be the strongest quarter for power as project completions are
frequently planned to come on-line in the spring to meet peak summer demand.
Also included in operating profit were additional provisions on three legacy
power projects.
As expected, activity in the Power industry declined as near term demand for
additional power generation subsided. New awards decreased to $124.2 million and
$915.4 million for the three and six months ended June 30, 2002, respectively,
from $981.6 million and $1,881.2 million for the comparable 2001 periods.
Backlog at June 30, 2002 decreased by 23 percent to $1,869.9 million from
$2,432.3 million at June 30, 2001 as a result of project work-off and the
decline in new awards.
15
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
GLOBAL SERVICES
Revenues and operating profit for the Global Services segment are summarized as
follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
$ in millions 2002 2001 2002 2001
-----------------------------------------------------------------------
Revenues $ 242.9 $ 333.3 $ 522.3 $ 663.0
Operating profit 23.5 13.0 44.9 35.9
Revenues decreased 27 percent in the quarter, principally in the manufacturing
sector of the company's operations and maintenance activities. Operating profit
improved significantly in the second quarter primarily due to the restructuring
of procurement services activities, which incurred substantial development costs
in the 2001 period.
New awards and backlog for Global Services reflects Operations and Maintenance
activities. The equipment, temporary staffing and global sourcing and
procurement operations do not report backlog due to the short turnaround between
the receipt of new awards and the recognition of revenue. New awards for the
three and six months ended June 30, 2002 were $220.3 million and $835.7 million,
respectively, compared with $416.0 million and $857.1 million in the comparable
2001 period, reflecting a slower than expected recovery for the manufacturing
sector. Backlog at June 30, 2002 was $1,927.9 million, down slightly from
$1,964.6 million at June 30, 2001.
GOVERNMENT SERVICES
Revenues and operating profit for the Government Services segment are summarized
as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
$ in millions 2002 2001 2002 2001
-----------------------------------------------------------------------
Revenues $ 210.7 $ 205.9 $ 423.4 $ 404.9
Operating profit 5.9 5.8 11.2 10.4
Revenues increased 2 percent for the three months ended June 30, 2002 compared
to the 2001 period, essentially in line with operating profit that increased 3
percent from the second quarter last year. The increase reflects the initial
booking of the recent award to provide construction services for the U.S.
Ground-Based Midcourse Missile Defense test bed facilities.
New awards increased significantly in the quarter to $164.5 million compared to
$10.9 million in the 2001 period. Backlog at June 30, 2002 increased 67 percent
to $393.6 million from $235.2 million in second quarter last year.
16
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
OTHER
Corporate general and administrative expense ("G&A") for the three and six
months ended June 30, 2002 was $31.6 million and $65.1 million, respectively,
compared to $35.1 million and $97.9 million in the 2001 comparison periods. G&A
for the second quarter of 2002 was benefited by overhead cost reductions and
impacted by three unusual one-time items comprised of two charges and a one-time
gain.
The expense items included a $12.0 million charge to reflect recognition of a
guarantee obligation for pollution control bonds related to zinc operations that
were sold in 1987. The provision was recorded at this time due to the obligor's
recent inability to meet the current obligation on the bonds without financial
assistance from Fluor. In addition, the company recognized charges totaling
$12.6 million related to the recent reevaluation of the future scope of its
enterprise management system implementation. Offsetting these charges
was a one-time gain of $12.8 million related to the demutualization of an
insurance company.
Included in G&A expense for the six months ended June 30, 2001 is stock based
compensation charges of $28.0 million ($18.1 million after tax).
Net interest income for the three and six months ended June 30, 2002 was $1.8
million and $2.4 million, respectively, compared with net interest expense of
$4.0 million and $11.3 million for the 2001 comparison periods. The improvement
was due to the company's strong cash position and minimal debt.
The effective tax rate on the company's continuing operations for the three
months ended was 35.8 percent. The rate is higher than the normal 32.5 percent
rate due to the impact from dispute resolution provisions, some of which were
recorded during the quarter without tax benefit. Excluding these items, the tax
rate expected for the remainder of the year is projected to be 32.5 percent.
MATTERS IN DISPUTE RESOLUTION
As of June 30, 2002, several matters on certain completed projects are in the
dispute resolution process. The following discussion provides a background and
current status of these matters:
AT&T Wireless
In 1998, the company entered into a contract with a major telecommunications
provider to install and manage a fixed wireless plan that would deliver (always
on) high speed internet access to 512 kb/s without a cable footprint. The
original contract with AT&T Wireless Services ("AWS") contemplated
modifications. The company agreed to defer billing of fixed overhead associated
with contract performance. The number of wireless units installed or to be
installed was substantially below the originally anticipated volume resulting in
higher unit costs. In addition, training of personnel, installation costs, and
work force utilization costs exceeded expectations. Subsequent to the transfer
of assets to AWS upon termination of the contract, the company filed an
arbitration demand for remaining costs. The parties have resumed settlement
discussions through mediation and negotiations continue.
Murrin Murrin
Disputes have arisen between Fluor Australia and its client, Anaconda Nickel,
over the Murrin Murrin Nickel Cobalt project located in Western Australia.
Anaconda's primary contention is that the process design is defective and
incapable of proper operation. Anaconda also contends that the plant suffers
from numerous other defects and that it has suffered consequential losses, such
as loss of profit, for which it seeks payment from the company. Fluor vigorously
disputes and denies Anaconda's allegations.
Both parties have initiated the dispute resolution process under the contract.
The first phase of the arbitration hearing was completed in May 2002. A decision
on the first phase is now expected in late summer of 2002. If, and to the extent
that, these problems are ultimately determined to be the responsibility of the
company, the company anticipates recovering a substantial portion of this amount
from available insurance. Expected proceeds from insurance recovery, including
legal fees, and amounts due from Anaconda, total approximately $90 million as of
June 30, 2002.
17
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Fluor Enterprises, Inc. v. Solutia, Inc.
U.S.D.C., Southern Division, Texas
On February 8, 2001, Fluor Enterprises, Inc. ("Fluor") filed suit against
Solutia, Inc. in the United States District Court for the Southern District of
Texas. The complaint alleges breach of a construction contract involving a new
acrylonitrile plant project near Alvin, Texas, and seeks recovery of damages.
The company has perfected a lien against the plant property and trial is set to
begin on September 3, 2002.
Fluor Daniel International and Fluor Arabia Ltd. v. General Electric Company,
et al
U.S.D.C., Southern District Court, New York
On October 13, 1998, Fluor Daniel International ("FDI") and Fluor Arabia Ltd.
("FAL") filed a complaint in the United States District Court for the Southern
District of New York against General Electric Company and certain operating
subsidiaries as well as Saudi American General Electric, a Saudi Arabian
corporation. The complaint seeks damages in connection with the procurement,
engineering and construction of the Rabigh Combined Cycle Power Plant in Saudi
Arabia. Subsequent to a motion to compel arbitration of the matter the company
has initiated arbitration proceedings in New York under the American Arbitration
Association ("AAA") international rules. The three-person arbitration panel has
been selected and the arbitration is proceeding.
Dearborn Industrial Project
Duke/Fluor Daniel (D/FD)
The Dearborn Industrial Project (the "Project") started as a co-generation
combined cycle power plant project in Dearborn, Michigan. The initial Turnkey
Agreement, dated November 24, 1998, consisted of three phases. Commencing
shortly after Notice to Proceed, the owner/operator, Dearborn Industrial
Generation ("DIG"), issued substantial change orders enlarging the scope of the
project.
The Project has been severely delayed with completion of Phase II. DIG has
unilaterally taken over completion and operation of Phase II and is
commissioning that portion of the plant. Shortly thereafter DIG drew upon a $30
million letter of credit which D/FD expects to recover upon resolution of the
dispute. D/FD retains lien rights (in fee) against the project. In October 2001,
suit was commenced in Michigan State Court to foreclose on the lien interest.
On December 12, 2001, DIG filed a responsive pleading denying liability and
simultaneously served a demand for arbitration of D/FD claiming, among other
things, that D/FD is liable to DIG for alleged construction delays and defective
engineering and construction work at the Dearborn plant. This matter is
currently awaiting decisions of the Court to determine the forum for dispute
resolution.
Butinge Nafta Oil Terminal
(International Arbitration under ICC)
On March 10, 2000, Butinge Nafta ("Nafta"), the project owner, commenced
arbitration proceedings against Fluor Daniel Intercontinental ("FDI"),
concerning a bulk oil storage terminal located in Lithuania alleging, among
other issues, that FDI represented costs in excess of actual estimates. FDI
engineered, procured and managed the construction of the Facility on a lump sum
basis. On June 21, 2000, Fluor filed a separate arbitration against Nafta to
recover delay/disruption damages caused by Nafta, as well as compensation for
out of scope services. FDI vigorously disputes and denies Nafta's allegations.
The first hearing on the merits of the case was conducted in late May 2001 with
an additional hearing in June 2002. Final legal submissions and arguments are
scheduled for September 2002.
18
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DISCONTINUED OPERATIONS
In September 2001, the company adopted a plan as approved by the Board of
Directors that will enhance focus on its core engineering, procurement,
construction and maintenance (EPCM) business through the disposition of certain
non-strategic businesses. The company is pursuing the sale of its AMECO
dealerships and the non-EPCM portions of TRS, its temporary staffing business.
In addition, the company is exiting certain AMECO markets in South America and
has completed closure of GlobEquip, LLC, a web-based business established to
sell surplus heavy equipment. In accordance with the provisions of Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", the results of operations and the provisions to
adjust the assets of the disposal groups to fair value, less costs to sell, have
been reported as discontinued operations.
Discontinued operations for the three and six months ended June 30, 2002
reported earnings and gain on disposal of zero and $5.0 million, respectively,
compared with losses of $0.9 million and $6.2 million for the 2001 comparison
periods.
Operating results for businesses discontinued in 2001 were a loss of $1.4
million and zero, after-tax, for the three and six months ended June 30, 2002,
respectively, compared with after-tax losses of $0.9 million and $6.2 million
for the 2001 comparison periods. The 2002 earnings for the three and six month
periods include after-tax impairment credits of $1.4 million and $5.0 million,
respectively, which primarily reflect the excess of proceeds over the carrying
value realized on the sale of a temporary staffing company in the second quarter
of 2002 and a dealership that was sold in the first quarter of 2002.
FINANCIAL POSITION AND LIQUIDITY
During the first six months of 2002, substantial cash flow from operations and
asset sales combined to more than offset cash utilized for capital expenditures,
debt reduction and dividends to produce an increase in cash of $263.6 million.
Cash provided by operating activities amounted to $232.6 million in the six
months ended June 30, 2002 compared with $275.8 million in the same period in
2001. Cash provided from changes in operating assets and liabilities in both
periods was impacted by changes in the cash advances from Duke/Fluor Daniel. In
the 2001 period, cash advanced from Duke/Fluor Daniel provided a substantial
portion of the increase, while in the 2002 period cash advances were repaid in
the amount of $34.4 million as funds were used in the execution of projects.
Offsetting this reduction in 2002 was substantial cash provided by other
operating assets and liabilities through reduction of project based accounts
receivable and work in progress, and increases in accounts payable, partially
offset by a reduction in advance billings on contracts.
Receipt of advances from clients on Duke/Fluor Daniel projects is a normal
condition in contracts in the power industry where most projects are negotiated
on a fixed price basis. Substantial expenditures for work performed on projects
in progress combined with the expected moderation in receipt of new client
advances from a slowing in the pace of new project awards in the Power segment
could result in a decrease of as much as $200 to $300 million in the balance of
these advances over the remainder of 2002. The levels of operating assets and
liabilities vary from period to period and are affected by the mix, stage of
completion and commercial terms of engineering and construction projects.
19
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash flows from investing activities included $51.0 million from the sale
of S&R Equipment Company, one of the dealership entities of AMECO and AMBIT
Technology, one of the discontinued operations of TRS. The proceeds from the
sale of property, plant and equipment included approximately $32.4 million
realized from the liquidation sale of equipment at one dealership and the AMECO
operations in Argentina and Peru. Two dealerships remain unsold and are expected
to be disposed of by the end of this year. Capital expenditures for continuing
operations were $37.0 million in the first half of 2002 compared with $79.6
million in the same period of 2001. Capital expenditures for discontinued
operations in 2002 declined substantially compared with 2001, reflecting the
disposal of two of the dealership operations and the shutdown activities at one
dealership and the AMECO operations in Argentina and Peru. Capital expenditures
for continuing operations also declined substantially in the 2002 period
compared with 2001 as the company's investment in its enterprise resource
management system was essentially completed at the end of 2001.
Cash flows from financing activities in the 2002 six month period reflected a
utilization of cash for dividends ($0.32 per share) and debt reduction. This
contrasts with the first six months of 2001 which benefited from $143.7 million
of cash generated from the exercise of stock options as the price of Fluor stock
advanced following the successful spin-off of Massey Energy, Inc. on November
30, 2000. In addition, proceeds of $127.0 million were received from the sale
leaseback of the Sugar Land, Texas facility, which when combined with funds from
stock option exercises more than offset cash used to retire short-term
borrowings in the 2001 period.
Liquidity is currently being provided by substantial customer advances on
contracts in progress including the company's proportional share of excess cash
that has been advanced to the company by Duke/Fluor Daniel. This cash advance
position enables the company to have very low debt levels at present. As work is
performed on projects and client advances, including amounts from Duke/Fluor
Daniel, decline as discussed above, liquidity, as required, is available from
the company's access to the commercial paper market from which it may borrow up
to $350 million as supported by lines of credit from banks. In addition, the
company has $121 million in available uncommitted lines of credit that can be
accessed for general cash management purposes.
The company has access to substantial short-term committed and uncommitted lines
of credit to support letters of credit. In the ordinary course of the
contracting business, letters of credit are provided to clients in lieu of
retention or for performance and completion guarantees on engineering and
construction contracts. Primarily as a result of the company's strong credit
standing which provides substantial availability of letters of credit and
bonding capacity, retainage on engineering and construction contracts is
minimal. The company also uses surety bonds to guarantee its performance on
contracts.
The company has agreed to make available $100 million of letter of credit
capacity to ICA/Fluor for their projects. Additional Fluor support may be
required as a result of the recent credit downgrade of the financial condition
of Fluor's partner.
FINANCIAL INSTRUMENTS
The company utilizes forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. At June 30, 2002, the company had forward foreign
exchange contracts of less than 18 months duration to exchange principally
Euros, British pounds, Canadian dollars, and South African rand for U.S.
dollars. The total gross notional amount of these contracts at June 30, 2002 was
$4.6 million representing forward contracts to purchase foreign currency.
20
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). Under SFAS 142, goodwill is no longer amortized but will be subject
to annual impairment tests. The company adopted SFAS 142 effective January 1,
2002 and ceased amortizing goodwill. Earnings from continuing operations for the
three and six months ended June 30, 2001 include $1.0 million ($0.01 per diluted
share) and $1.8 million ($0.02 per diluted share) of amortization expense.
During the first quarter of 2002, the company initiated the first of the
required impairment tests of goodwill associated with continuing operations and
has determined that none of the goodwill is impaired.
21
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
Three and Six Months Ended June 30, 2002 and 2001
UNAUDITED
Three Months Ended June 30,
----------------------------
$ in millions 2002 2001
- -----------------------------------------------------------------
Backlog - beginning of period $ 11,578.2 $ 10,183.7
New awards 2,003.7 2,491.5
Adjustments and cancellations, net (203.7) 128.9
Work performed (2,493.0) (2,183.5)
----------------------------
Backlog - end of period $ 10,885.2 $ 10,620.6
============================
Six Months Ended June 30,
----------------------------
$ in millions 2002 2001
- -----------------------------------------------------------------
Backlog - beginning of period $ 11,505.5 $ 9,766.7
New awards 4,574.2 5,025.7
Adjustments and cancellations, net (232.5) (122.9)
Work performed (4,962.0) (4,048.9)
----------------------------
Backlog - end of period $ 10,885.2 $ 10,620.6
============================
22
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLUOR CORPORATION
-------------------------------------------------
(Registrant)
Date: August 14, 2002 /s/D. M. Steuert
--------------- -------------------------------------------------
D. M. Steuert
Senior Vice President and Chief Financial Officer
/s/V. L. Prechtl
-------------------------------------------------
V. L. Prechtl,
Vice President and Controller
24