-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HibuahsyLoZtHmZXT8YiPX7eztwsnCFi1OGy+dSfMXydXG7ZymjysZ/u0fPaF+ag rRhNNC56e7BiuSRxT5hCAw== 0000892569-99-001721.txt : 19990615 0000892569-99-001721.hdr.sgml : 19990615 ACCESSION NUMBER: 0000892569-99-001721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLUOR CORP/DE/ CENTRAL INDEX KEY: 0000037748 STANDARD INDUSTRIAL CLASSIFICATION: HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS [1600] IRS NUMBER: 950740960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07775 FILM NUMBER: 99645897 BUSINESS ADDRESS: STREET 1: 3353 MICHELSON DR CITY: IRVINE STATE: CA ZIP: 92730 BUSINESS PHONE: 9499752000 MAIL ADDRESS: STREET 1: 3353 MICHELSON DRIVE CITY: IRVINE STATE: CA ZIP: 92698 FORMER COMPANY: FORMER CONFORMED NAME: FLUOR CORP LTD DATE OF NAME CHANGE: 19710624 10-Q 1 FORM 10-Q 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 April 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to______________ Commission File Number: 1-7775 FLUOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-0740960 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization) 3353 Michelson Drive, Irvine, CA 92698 - -------------------------------------------------------------------------------- (Address of principal executive offices) (949) 975-2000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) As of May 31, 1999 there were 75,809,059 shares of common stock outstanding. 2 FLUOR CORPORATION FORM 10-Q APRIL 30, 1999
TABLE OF CONTENTS PAGE - ----------------------------------------------------------------------------------------- PART I: FINANCIAL INFORMATION Condensed Consolidated Statement of Operations for the Three Months Ended April 30, 1999 and 1998.............................................. 2 Condensed Consolidated Statement of Operations for the Six Months Ended April 30, 1999 and 1998.............................................. 3 Condensed Consolidated Balance Sheet at April 30, 1999 and October 31, 1998....................................................................... 4 Condensed Consolidated Statement of Cash Flows for the Six Months Ended April 30, 1999 and 1998.................................................... 6 Notes to Condensed Consolidated Financial Statements....................... 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 10 Changes in Backlog......................................................... 23 PART II: OTHER INFORMATION ....................................................... 24 SIGNATURES......................................................................... 26
3 PART I: FINANCIAL INFORMATION FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Three Months Ended April 30, 1999 and 1998 UNAUDITED
In thousands, except per share amounts 1999 1998 - ------------------------------------------------------------------------------------------------------ REVENUES $ 3,091,307 $ 3,282,079 COSTS AND EXPENSES Cost of revenues 3,001,212 3,184,891 Special provision 136,500 -- Corporate administrative and general expense 10,222 10,115 Interest expense 13,008 9,327 Interest income (5,112) (5,904) ------------------------------- Total Costs and Expenses 3,155,830 3,198,429 ------------------------------- (LOSS) EARNINGS BEFORE INCOME TAXES (64,523) 83,650 INCOME TAX EXPENSE 8,372 29,361 ------------------------------- NET (LOSS) EARNINGS $ (72,895) $ 54,289 =============================== (LOSS) EARNINGS PER SHARE BASIC $ (.97) $ .67 =============================== DILUTED $ (.97) $ .67 =============================== DIVIDENDS PER COMMON SHARE $ .20 $ .20 =============================== SHARES USED TO CALCULATE BASIC (LOSS) EARNINGS PER SHARE 75,154 80,506 =============================== DILUTED (LOSS) EARNINGS PER SHARE 75,154 80,865 ===============================
See Accompanying Notes. 2 4 FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Six Months Ended April 30, 1999 and 1998 UNAUDITED
In thousands, except per share amounts 1999 1998 - -------------------------------------------------------------------------------------------------- REVENUES $ 6,475,372 $ 6,681,098 COSTS AND EXPENSES Cost of revenues 6,292,416 6,494,170 Special provision 136,500 -- Corporate administrative and general expense 19,780 10,563 Interest expense 26,012 18,749 Interest income (9,712) (10,492) ------------------------------- Total Costs and Expenses 6,464,996 6,512,990 ------------------------------- EARNINGS BEFORE INCOME TAXES 10,376 168,108 INCOME TAX EXPENSE 32,190 59,006 ------------------------------- NET (LOSS) EARNINGS $ (21,814) $ 109,102 =============================== (LOSS) EARNINGS PER SHARE BASIC $ (.29) $ 1.33 =============================== DILUTED $ (.29) $ 1.33 =============================== DIVIDENDS PER COMMON SHARE $ .40 $ .40 =============================== SHARES USED TO CALCULATE BASIC (LOSS) EARNINGS PER SHARE 75,136 81,541 =============================== DILUTED (LOSS) EARNINGS PER SHARE 75,136 81,751 ===============================
See Accompanying Notes. 3 5 FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET April 30, 1999 and October 31, 1998 UNAUDITED
April 30, October 31, $ in thousands 1999 1998* - ------------------------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 207,871 $ 340,544 Accounts and notes receivable 945,363 959,416 Contract work in progress 625,557 596,983 Deferred taxes 99,941 81,155 Inventory and other current assets 342,454 262,753 Net assets held for sale -- 36,300 ---------------------------- Total current assets 2,221,186 2,277,151 ---------------------------- Property, plant and equipment (net of accumulated depreciation, depletion and amortization of $1,207,501 and $1,132,923, respectively) 2,179,076 2,147,308 Investments and goodwill, net 256,590 276,653 Other 356,928 318,096 ---------------------------- $5,013,780 $5,019,208 ============================
(continued on next page) * Amounts at October 31, 1998 have been derived from audited financial statements. 4 6 FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET April 30, 1999 and October 31, 1998 UNAUDITED
April 30, October 31, $ in thousands 1999 1998* - -------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts and notes payable $ 893,296 $ 972,096 Commercial paper and loan notes 374,048 428,458 Advance billings on contracts 588,938 546,816 Accrued salaries, wages and benefit plans 324,083 324,412 Other accrued liabilities 312,773 223,596 Current portion of long-term debt 3 176 ------------------------------- Total current liabilities 2,493,141 2,495,554 ------------------------------- Long term debt due after one year 300,002 300,428 Deferred taxes 128,754 105,515 Other noncurrent liabilities 611,178 592,102 Commitments and contingencies 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 - 75,797,347 shares and 75,572,537 shares, respectively 47,373 47,233 Additional capital 208,023 199,077 Retained earnings 1,279,711 1,331,843 Unamortized executive stock plan expense (26,187) (22,633) Accumulated other comprehensive income: Cumulative translation adjustment (28,215) (29,911) ------------------------------- Total shareholders' equity 1,480,705 1,525,609 ------------------------------- $ 5,013,780 $ 5,019,208 ===============================
See Accompanying Notes. * Amounts at October 31, 1998 have been derived from audited financial statements. 5 7 FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended April 30, 1999 and 1998 UNAUDITED
$ in thousands 1999 1998 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) earnings $ (21,814) $ 109,102 Adjustments to reconcile net (loss) earnings to cash provided by operating activities: Depreciation, depletion and amortization 153,629 139,179 Deferred taxes 5,216 (19,044) Special provision, net of cash paid 130,424 -- Change in operating assets and liabilities, excluding effects of business acquisitions/dispositions (188,557) 199,330 Other, net (21,342) (31,158) --------------------------- Cash provided by operating activities 57,556 397,409 --------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (250,728) (241,025) Proceeds from sale of subsidiary 36,300 -- Proceeds from sale of property, plant and equipment 77,634 53,884 Proceeds from sales/maturities of marketable securities -- 10,089 Investments, net (6,863) (3,779) Other, net (4,205) (8,890) --------------------------- Cash utilized by investing activities (147,862) (189,721) --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term borrowings (54,410) 67,030 Proceeds from issuance of notes payable to affiliate 41,972 -- Cash dividends paid (30,318) (32,884) Stock options exercised 1,852 8,744 Purchases of common stock -- (227,941) Other, net (1,463) (2,470) --------------------------- Cash utilized by financing activities (42,367) (187,521) --------------------------- (Decrease) increase in cash and cash equivalents (132,673) 20,167 Cash and cash equivalents at beginning of period 340,544 299,324 =========================== Cash and cash equivalents at end of period $ 207,871 $ 319,491 ===========================
See Accompanying Notes. 6 8 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (1) The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles and, therefore, should be read in conjunction with the Company's October 31, 1998 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 April 30, 1999 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 April 30, 1999 and its consolidated results of operations and cash flows for the three and six months ended April 30, 1999 and 1998. In addition, results for the Engineering and Construction segment include a previously announced one-time, special provision of $136.5 million. See Note 6 below and Management's Discussion and Analysis of Financial Condition and Results of Operations for further information on this item. Certain 1998 amounts have been reclassified to conform with the 1999 presentation. (2) Inventories comprise the following:
April 30, October 31, $ in thousands 1999 1998 - ------------------------------------------------------------------------------------ Equipment for sale/rental $ 123,816 $ 94,179 Coal 70,543 52,628 Supplies and other 53,842 51,838 --------------------------------- $ 248,201 $ 198,645 =================================
7 9 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED (3) Effective November 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement has no impact on the Company's net (loss) earnings or shareholders' equity. SFAS No. 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. The components of comprehensive (loss) income, net of related tax, are as follows:
Three months ended Six months ended April 30, April 30, ---------------------- --------------------- ($ in thousands) 1999 1998 1999 1998 ---------------------- --------------------- Net (loss) earnings $(72,895) $54,289 $(21,814) $109,102 Foreign currency translation adjustment 1,470 288 1,696 (7,419) ---------------------- --------------------- Comprehensive (loss) income $(71,425) $54,577 $(20,118) $101,683 ====================== =====================
(4) Cash paid for interest was $15.4 million and $19.4 million for the six month periods ended April 30, 1999 and 1998, respectively. Income tax payments, net of receipts, were $42.9 million and $33.5 million during the six month periods ended April 30, 1999 and 1998, respectively. (5) During the fourth quarter of 1998, the Company entered into a forward purchase contract for 1,850,000 shares of its common stock at a price of $49 per share. The contract matures in October 1999 and gives the Company the ultimate choice of settlement option, either physical settlement or net share settlement. This contract effectively incorporates and extends a number of prior contracts originally entered into during the third quarter of 1998 as part of the Company's then ongoing share repurchase program. As of April 30, 1999, the contract settlement cost per share exceeded the current market price per share by $16.70. In May 1999, the contract was amended and the maturity date extended until October 2000. 8 10 FLUOR CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED 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. (6) On March 9, 1999, the Company announced a new strategic direction, including a reorganization of the operating units and administrative functions of its Engineering and Construction segment. A one-time, special provision of $136.5 million ($119.8 million after-tax) was recorded in the Company's second quarter for the implementation of the reorganization. The provision is primarily for personnel, facilities and asset impairment costs. See Management's Discussion and Analysis of Financial Condition and Results of Operations for a more detailed discussion. Expanded disclosure will be provided in future periods to report the progress of the reorganization. As of April 30, 1999, $6.1 million of cash costs were incurred for employee severance. In addition, $12.6 million of intangible assets (goodwill) and investments were charged against the provision as impaired assets. 9 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, 1998 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. 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 - Fluor Business Risks" in the Company's Form 10-K filed January 22, 1999. These filings are available publicly and upon request from Fluor's Investor Relations Department: (949) 975-3909. The Company disclaims any intent or obligation to update its forward-looking statements. 10 12 RESULTS OF OPERATIONS Revenues for the three and six month periods ended April 30, 1999 decreased by 6 percent and 3 percent, respectively, compared with the same periods of 1998. Net losses for the three and six month periods ended April 30, 1999 were $72.9 million and $21.8 million, respectively, compared with net earnings of $54.3 million and $109.1 million, respectively, for the same periods of 1998. Results for 1999 include a previously announced one-time, special provision of $136.5 million ($119.8 million after-tax) for personnel, facilities and asset impairment costs required to implement the Company's new strategic direction and reorganization of its Engineering and Construction segment. Also contributing to the lower results was a decrease in operating profit from the Company's Coal segment as well as higher interest and corporate administrative and general expenses. ENGINEERING AND CONSTRUCTION The Engineering and Construction segment revenues and operating (loss) profit for the three and six month periods ended April 30, 1999 and 1998 are as follows:
Three months ended Six months ended April 30, April 30, -------------------------- --------------------------- ($ in thousands) 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $2,837,953 $3,014,378 $5,947,387 $6,120,853 Operating (loss) profit $(76,905) $57,867 $(19,832) $111,254
Revenues for the Engineering and Construction segment were slightly lower for the three and six month periods ended April 30, 1999 compared with the same periods in 1998, primarily due to a reduction in work performed in the core engineering, procurement and construction business. This reduction is consistent with the global slow down in the development of mining and petrochemical plants and facilities, which has been adversely impacted by low petroleum and commodity prices. Excluding the impact of the $136.5 million special provision, the segment generated operating profits of $59.6 million and $116.7 million for the three and six month periods ended April 30, 1999, respectively, both represent increases over the same periods in 1998. Operating margins improved slightly during 1999 as compared with 1998, primarily due to the Company's continuing emphasis on improving margins through selectivity in new projects. In addition to the $136.5 million special provision, results for the Engineering and Construction segment included a provision totaling $64 million for process design problems which have arisen on its Murrin Murrin nickel cobalt project in Western Australia. The Company anticipates recovering a portion of this amount and, accordingly, has recorded $44 million in potential insurance recoveries. The result is a negative $20 million impact on the quarter from this project. Partially offsetting this was recognition of $10 million of earnings from a project in Indonesia. Realization of these earnings had been in question primarily due to the previously reported uncertainty of collection of certain progress billings. The collection of these billings combined with resolution of other normal project completion contingencies during the current quarter, resulted in recognition of project earnings in accordance with contract accounting principles. 11 13 As a result of the strategic reorganization, the Engineering and Construction segment has been separated into two strategic business enterprises: Fluor Daniel and Fluor Global Services. Fluor Daniel, which will concentrate on the Company's engineering, procurement and construction business, reported operating profit for the quarter of $39 million, including the significant project items discussed in the preceding paragraph. Fluor Global Services, which includes American Equipment Company, TRS Staffing Solutions, Government Services, Telecommunications, and a new company, Operations, Maintenance and Consulting Services, posted operating profit of $21 million for the quarter. The above results exclude the impact of the $136.5 million special provision. New awards for the three and six months ended April 30, 1999 were $1.6 billion and $3.3 billion, respectively, compared with $2.8 billion and $5.4 billion for the same periods of 1998. Approximately 45 percent and 52 percent, respectively, of the new awards for the three and six months ended April 30, 1999 were for projects located outside of the United States. There were no individual project awards in excess of $225 million in the second quarter of 1999. The decrease in 1999 new awards as compared with 1998 reflects a continued trend by clients to defer capital spending on new projects in certain markets as well as greater project selectivity by the Company. Furthermore, despite some improvement in both oil prices and the economic stability of Asia and Latin America, the ongoing overall weak global economic conditions and volatility in capital markets may result in new awards continuing to decline for the remainder of 1999 and into 2000 compared with 1998. The following table sets forth backlog for each of the Company's Engineering and Construction business groups:
April 30, October 31, April 30, $ in millions 1999 1998 1998 - -------------------------------------------------------------------------------------------- Process $ 4,141 $ 5,345 $ 6,129 Industrial 3,755 4,761 5,280 Power/Government 1,166 1,272 1,371 Diversified Services 1,161 1,267 1,134 ---------------------------------------- Total backlog $ 10,223 $ 12,645 $ 13,914 ======================================== U.S. $ 4,795 $ 5,911 $ 5,926 Outside U.S. 5,428 6,734 7,988 ---------------------------------------- Total backlog $ 10,223 $ 12,645 $ 13,914 ========================================
12 14 The overall decrease in backlog is consistent with the slowing trends in new awards. Approximately 53 percent of the Company's backlog as of April 30, 1999 is for projects located outside the United States. Due to the nature of the projects the Company pursues and those included in backlog, the Company has not experienced any significant disruption in ongoing project execution related to turmoil in the global financial markets. Although backlog reflects business which is considered 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. REORGANIZATION COSTS During the second quarter of 1999, the Company adopted a plan to reorganize its operations to respond to deteriorating business conditions in its Engineering and Construction segment. The anticipated benefits to be derived from the reorganization will be a $160 million annual reduction in overhead expense. The Company recorded a one-time, special provision of $136.5 million ($119.8 million after-tax) to recognize the costs associated with the reorganization. Approximately 5,000 jobs are expected to be eliminated by these actions within the next year. Some affected employees are entitled to receive severance benefits under established severance policies or by governmental regulations. Additionally, outplacement services may be provided on a limited basis to some affected employees. The provision also reflects amounts for asset impairment, primarily for property, plant and equipment; intangible assets (goodwill); and certain investments, totaling $48.8 million. The asset impairments were recorded primarily because of the Company's decision to exit certain non-strategic geographic locations and businesses. The carrying values of impaired assets were adjusted to their current market values based on estimated sale proceeds, using either discounted cash flows or contractual amounts. Lease termination costs of $14.5 are also included in the reorganization charge. The Company anticipates closing 15 non-strategic offices worldwide as well as consolidating and downsizing other office locations. The closure or rationalization of these facilities is expected to be substantially completed by the end of fiscal year 2000. The following table summarizes the Company's reorganization plan:
Lease ($ in millions) Personnel Asset Termination Costs Impairments Costs Other Total -------------------------------------------------------------- Special provision $72.2 $48.8 $14.5 $1.0 $136.5 Cash expenditures (6.1) -- -- -- (6.1) Asset write-offs -- (12.6) -- -- (12.6) -------------------------------------------------------------- Balance at April 30, 1999 $66.1 $36.2 $14.5 $1.0 $117.8 ==============================================================
13 15 COAL Coal segment revenues and operating profit for the three and six month periods ended April 30, 1999 and 1998 are as follows:
Three months ended Six months ended April 30, April 30, ------------------------ ------------------------ ($ in thousands) 1999 1998 1999 1998 -------- -------- -------- -------- Revenues $253,354 $267,701 $527,985 $560,245 Operating profit $31,741 $40,298 $70,448 $76,989
Revenues decreased 5 percent and 6 percent, respectively, for the three and six month periods ended April 30, 1999 compared with the same periods in 1998. The decrease was primarily due to lower sales volume of metallurgical coal, partially offset by an increase in lower margin steam coal sales. Prices for both metallurgical and steam coal were also slightly lower during the periods as compared with 1998. The metallurgical coal market continues to be adversely affected by steel imports from outside the United States. These imports have reduced demand for steel produced in the U.S. and thereby reduced U.S. demand for metallurgical coal, which is used in steel production. Additionally, the market for steam coal, which is used to fire electric generating plants, is softening as a result of mild weather conditions and the low price of oil, which offers a lower cost alternative to steam coal. These market conditions have placed pressure on both the sales volume and pricing outlook for 1999. Gross profit increased slightly during the three and six months ended April 30, 1999 as compared with 1998, primarily due to the decrease in production costs for both metallurgical and steam coal. The improvement in gross profit during both periods was more than offset by higher fixed costs, primarily depreciation, depletion and amortization. OTHER Interest expense for the three and six months ended April 30, 1999 increased compared with the same periods of 1998 due primarily to an increase in commercial paper and loan notes used to fund the Company's share repurchase program, which was completed in October 1998. Corporate administrative and general expense during the three months ended April 30, 1999 was relatively flat compared with the same period in 1998. Corporate administrative and general expense for the six month period ended April 30, 1999 was higher than the comparable period in 1998 due primarily to a credit in 1998 of approximately $10 million related to a long-term incentive compensation plan. The Company accrues for certain long-term incentive awards whose ultimate cost is dependent on attainment of various performance targets set by the Organization and Compensation Committee (the "Committee") of the Board of Directors. Under the long-term incentive compensation plan referred to above, the performance target expired, without amendment or extension by the Committee, on December 31, 1997. The effective tax rate for the three and six month periods ended April 30, 1999 is significantly higher than the amounts reported for the same periods in 1998. This is primarily because certain 14 16 non-U.S. items included in the special provision did not receive full tax benefit. If the special provision were excluded for tax rate determination purposes, there would be no significant difference between the effective tax rate and the statutory rate for the three and six month periods ended April 30, 1999. FINANCIAL POSITION AND LIQUIDITY At April 30, 1999, the Company had cash and cash equivalents of $207.9 million and a total debt to total capital ratio of 32.6 percent. At April 30, 1998, the Company had cash and cash equivalents of $319.5 million and a total debt to total capital ratio of 22.0 percent. Cash flow generated from operating activities was $57.6 million during the six month period ended April 30, 1999, compared with $397.4 million during the same period in 1998. The decrease in cash generated from operating activities is primarily due to a decrease in cash flow from engineering and construction activities which is affected from period to period by the mix, stage of completion and commercial terms of engineering, procurement and construction projects. In addition, operating cash flow was adversely impacted by an increase in inventories, both for equipment for sale/rental and coal. The increase in inventories is a result of slowing markets. Cash flow in 1998 was positively impacted by the receipt of a $30 million tax refund in the first quarter. Financing activities during the six months ended April 30, 1999 included capital expenditures of $250.7 million, including $144.0 million for the Coal segment. Capital expenditures, net of proceeds from the sale of property, plant and equipment, were lower in 1999 than the comparable period in 1998, entirely in the Engineering and Construction segment. The Company also completed the sale of its ownership interest in Fluor Daniel GTI, Inc. during the first six months of 1999 and received proceeds totaling $36.3 million. Investing activities during the six months ended April 30, 1999 included a reduction in commercial paper and loan notes of $54.4 million partially offset by the issuance of $42.0 million in notes payable to an affiliate. Dividends during the first six months of 1999 were $30.3 million ($.40 per share) as compared with $32.9 million ($.40 per share) in 1998. The decrease in the dividends paid is due to a lower number of shares outstanding as a result of the Company's 1997/1998 share repurchase program. Under this program, during the six months ended April 30, 1998 the Company repurchased 4,995,400 shares of its common stock for a total of $227.9 million. The Company has on hand and access to sufficient sources of funds to meet its anticipated operating needs, including cash required to implement the Company's reorganization plan. 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 and loan note program. During January 1999, the Company filed a shelf registration statement with the Securities and Exchange Commission for the sale of up to $500 million in debt securities. 15 17 FINANCIAL INSTRUMENTS During the fourth quarter of 1998, the Company entered into a forward purchase contract for 1,850,000 shares of its common stock at a price of $49 per share. The contract matures in October 1999 and gives the Company the ultimate choice of settlement option, either physical settlement or net share settlement. This contract effectively incorporates and extends a number of prior contracts originally entered into during the third quarter of 1998 as part of the Company's then ongoing share repurchase program. As of April 30, 1999, the contract settlement cost per share exceeded the current market price per share by $16.70. In May 1999, the contract was amended and the maturity date extended until October 2000. 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 April 30, 1999 and October 31, 1998, the Company had forward foreign exchange contracts of less than one year duration, to exchange principally Australian Dollars, Korean Won, Dutch Guilders and German Marks for U.S. dollars. In addition, the Company has a forward currency contract to exchange U.S. dollars for British pounds sterling to hedge annual lease commitments which expire in 1999. The total gross notional amount of these contracts at April 30, 1999 and October 31, 1998 was $46 million and $106 million, respectively. Forward contracts to purchase foreign currency represented $44 million and $102 million and forward contracts to sell foreign currency represented $2 million and $4 million, at April 30, 1999 and October 31, 1998, respectively. 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 building security equipment. The Year 2000 issue could affect the systems, transaction processing, computer applications and devices used by the Company to operate and monitor all major aspects of its business, including financial systems, marketing services, proprietary engineering and procurement systems, technical reference databases and facilities operating systems. Both IT systems and non-IT devices are subject to potential failure due to the Year 2000 issue. The Company has developed and implemented a plan to achieve Year 2000 readiness (the "Y2K Program"). The Company has implemented its Y2K Program through teams located at the Company's operating units throughout the world. Senior corporate staff oversee and coordinate such implementation efforts. Progress reports on the Y2K Program are presented regularly to the Company's senior management and periodically to the Audit Committee of the Company's Board 16 18 of Directors. The Audit Committee reviews the Company's Year 2000 processes and procedures to assess the appropriateness of its risk analysis process and results. The Company has divided systems potentially affected by the Year 2000 issue into the following broad categories: o Business Systems, including general ledger, accounting, human resources and other ancillary business systems software that runs on mainframe computers and various servers and is used throughout the Company's facilities; o Hardware, Network and Operating Systems, including mainframe computers running Business Systems and other applications software, servers for local area networks and wide area networks, hubs, routers, switches, and various operating systems located on servers and personal computers; o Engineering Systems, including engineering applications running primarily on personal computers and local area networks; o Major Site Specific Systems, including software and hardware which is not shared throughout the Company's facilities but is used at the Department of Energy's Hanford and Fernald Project Sites and at specific coal facilities and processing plants of the Company; o Other Site Specific Systems, including hardware and software used by the Company at other project sites; o Customer Systems, including equipment and software provided by the Company to its customers; and o Other Non-Mission Critical Systems, including, for the most part, applications software for specific disciplines or projects. In each category (excluding Other Non-Mission Critical Systems), the Company has identified and assigned priority to certain mission critical systems. The Company defines mission critical systems as those that might have a significant adverse effect in one or more of the following areas: safety, environmental, legal or financial exposure and Company credibility and image. In relation to existing systems, the Company's Y2K Program has been implemented in the following three phases: (1) identification and assessment of Year 2000 problems requiring systems modifications or replacements; (2) the remediation or replacement and testing of systems having Year 2000 problems; and (3) development of contingency and business continuity plans to mitigate the effect of any system or equipment failure. The timeframe for each phase of the Y2K Program, without respect to distinctions between mission critical systems and non-mission critical systems, are represented in the following table:
Phases of the Project START DATE END DATE Identification and assessment of IT and non- IT systems Early 1996 December 31, 1998 Remediation or replacement and testing Late 1996 October 31, 1999 Contingency planning Late 1998 Ongoing into 2000
17 19 With respect to systems that are being acquired by the Company for its own account or the account of customers, the Company uses standard compliance processes to certify Year 2000 compliance. The Company maintains relationships with thousands of suppliers, some of whom supply software, hardware and systems that must be assessed for Year 2000 compliance. The Company has identified approximately 2,000 critical suppliers. The Company requires that all suppliers certify and, where appropriate, guarantee that the systems and equipment they provide to the Company for its own account and the account of its customers are Year 2000 compliant. In addition to requiring such certifications, the Company has also established a procedure for reviewing Year 2000 compliance by critical suppliers. Actions include the review of remediation and testing of specific equipment, review of suppliers' corporate Year 2000 progress and confirmation of electronic exchange formats. Where appropriate, the Company may follow up its review of supplier information with on-site visits. Where a supplier does not, or cannot, satisfy the Company's Year 2000 requirements, the Company seeks alternate suppliers, subject to customer requirements and contract specifications. Given the number of suppliers utilized by the Company, compliance assessment is ongoing. Although initial reviews indicate that Year 2000 compliance by the Company's suppliers should not have a material adverse affect on the Company's operations, there can be no assurance that suppliers will resolve all Year 2000 issues in their systems and equipment in a timely manner. Generally, the Company has substantially completed phase 1 (identification and assessment) and phase 2 (remediation or replacement and testing) with respect to most of its Business Systems. The upgrading or remediation of the balance of the Business Systems are scheduled to be complete by the end of October 1999. At this time, the Company believes its mainframe system is Year 2000 ready. The Company is using an automated tool to test servers and approximately 17,000 personal computers with standard connections to servers. Approximately 77 percent of those computers have been tested, and approximately 85 percent of the personal computers tested (or approximately 65 percent of the total) have been found to be Year 2000 compliant. Approximately 15 percent of the computers tested require upgrading and are being upgraded. Remaining hardware, including personal computers that are not connected to servers, is predominately located at project sites or smaller offices. Such hardware is not likely to be mission critical and is being assessed through manual procedures. The Company is migrating its personal computers to new operating systems (Windows 95 and Windows NT), and migration is expected to address Year 2000 problems in various operating systems that are being replaced. All equipment upgrades and remediation are expected to be complete by August 1999. With respect to Engineering Systems, the Company plans to retire approximately 29 percent of its engineering applications software to streamline its operations, reduce support costs and avoid costs of Year 2000 remediation. The cost of such software, to the extent originally capitalized, has been fully amortized and the Company does not expect any significant write off as the result of such retirement. The remediation of remaining applications software is largely being addressed via upgrades. At this time, approximately 66 percent of the engineering applications software that will remain in use has been upgraded. With respect to the Engineering Systems, remediation and 18 20 testing are proceeding in accordance with the schedule and are generally expected to be complete by the end of June 1999. The assessment of mission critical Major Site Specific Systems is substantially complete. Remediation or replacement and testing of all the systems and equipment the Company has identified at the Department of Energy's projects has been completed. The assessment of site specific control systems used at the Company's coal plants is substantially complete. Approximately 63% of those systems are Year 2000 ready. Remediation of the remaining systems is expected to be complete by October 1999. Other Site Specific Systems have been assessed. The Company has identified approximately 330 applications in this category. Approximately 115 will be retired. Approximately 138 of those systems are Year 2000 ready. The balance are scheduled to be remediated by the end of June 1999. With respect to Customer Systems and current customer projects generally, the Company is making evaluations to determine whether or not any action is required to ensure Year 2000 readiness. At any time, the Company may have approximately 2,000 ongoing customer projects. The Company is reviewing those projects where it has ongoing warranty or performance obligations for Year 2000 issues. It has targeted approximately 1,000 projects for additional Year 2000 assessment, of which approximately 94 percent have been reviewed. At those projects where Year 2000 issues may exist, the Company is evaluating what further action is required, including remediation and contingency planning. In many cases, the Company does not provide its own warranties but has passed through to its customers the warranties provided by its suppliers. Accordingly, the Company is contacting suppliers of the systems affected by Year 2000 issues and monitoring their remediation efforts. The Company relies directly and indirectly on external systems utilized by its suppliers and on equipment and materials provided by those suppliers and used for the Company's business. As discussed above, the Company has implemented a procedure for reviewing Year 2000 compliance by its suppliers. With respect to systems and equipment previously 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, nor current information about Year 2000 capabilities, nor potential Year 2000 problems, with respect to past projects. Each project is performed under an agreement with the Company's client. Those agreements specifically outline the extent of the Company's obligations and warranties and the limitations that may apply. Other Non-Mission Critical Systems are comprised, for the most part, of approximately 600 specific applications software programs. Such software is not critical to the Company's operations and is being reviewed and remediated in accordance with the schedule. The Company has investments in various joint ventures and is monitoring the Year 2000 efforts of such joint ventures. Based on available information, the Company believes, that with a few exceptions, business systems used in such joint ventures are Year 2000 ready. 19 21 The Company uses both internal and external resources in its Y2K Program. The Company estimates that, from 1996 to date, it has spent approximately $16.3 million on the Year 2000 issue. It anticipates spending an additional $14.0 million in the next year and running into the first quarter of 2000. This estimate of additional spending was derived utilizing numerous assumptions, including the assumption that the Company has already identified its most significant Year 2000 issues and that plans of its third party suppliers will be fulfilled in a timely manner without cost to the Company. The Company estimates that 32 percent of the total costs incurred in the Y2K Program have been and will be incurred to remediate systems (including software upgrades); the remaining 68 percent will be incurred to replace problem systems and equipment. In addition to the direct costs of the Y2K Program, 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 are Year 2000 compliant. The Company estimates it has spent $11.8 million to date and will spend an additional $13.1 million in connection with such replacement program. This replacement program will continue into October 1999. The Y2K Program has been funded under the Company's general IT and operating budgets. In 1999, Y2K Program costs are estimated to be 12 percent of the IT budget. The Year 2000 expenditures have been and will continue to be 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. No significant internal systems projects are being deferred due to the Y2K Program efforts. 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). However, there can be no guarantee that these assumptions are accurate, and actual results could differ materially from those anticipated. The Company is developing contingency plans to address the Year 2000 issues that may pose a significant risk to its ongoing operations and existing projects. Such plans will include the implementation of alternate procedures to compensate for any system and equipment malfunctions or deficiencies with the Company's internal systems and equipment, with systems and equipment utilized at the Company's project sites and with systems and equipment provided to clients. During the remediation phase of the internal business systems, the Company has been and will be evaluating potential failures and attempt to develop responses in a timely manner. However, 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. Further contingency plans are being developed to address issues related to third parties that are not considered to be making sufficient progress in becoming Year 2000 ready in a timely manner. Due to the large number 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. 20 22 The Company's Y2K Program is subject to a variety of risks and uncertainties some of which are beyond the Company's control. Those risks and uncertainties include, but are not limited to, the availability of qualified computer personnel, the Year 2000 readiness of third parties and the Year 2000 compliance of systems and equipment provided by suppliers. The Company believes that its most reasonably likely worst case Year 2000 scenarios would relate to problems with the systems of third parties, rather than with the Company's internal systems. In this regard, the Company believes that risks are greatest in the area of utilities. Each of the Company's locations relies on local private and governmental suppliers for electricity, water, sewer, telecommunication and other basic utility services. If the supply of such necessary utilities were to fail at any location, the Company's operations at that location, whether consisting of engineering, design or construction activities, maintenance services or coal mining and processing, would essentially be shut down or disrupted until such utilities were restored. Depending on the location, the Company could suffer delays in performing contracts and in otherwise fulfilling its commitments. Such delays could materially adversely impact the Company's receipt of payments due from customers upon its tender of contract deliverables or upon achievement of contract milestones. At facilities located in developing countries, the risk of sustained infrastructure failures is accentuated by the lack of transparency in government and private enterprises and general constraints on infrastructure spending. The Company is working to assess its exposure to utility providers and other infrastructure risks. The Company believes that the geographical dispersion of the Company's facilities mitigates the risk that infrastructure failures in any locale will result in the simultaneous closure of, or sustained suspension of operations at, multiple Company facilities. Consequently, to the extent practical, the Company expects to mitigate any interruption in its business operations in one locale by shifting the performance of the constrained activity to a functioning office or facility. There may be instances, however, where the activity cannot be performed elsewhere or on a timely basis given the disruption caused by the Year 2000 problems in any locale. In such instances, the Company will assess the relevant provisions of its contracts and, where it deems appropriate, work with its customers to resolve performance and schedule delays and any resulting financial consequences on a mutually satisfactory basis to the extent possible under then prevailing circumstances. No assurance can be given that the Company will achieve Year 2000 readiness. 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. The failure of the Company, its clients (including governmental agencies), suppliers of computer systems and equipment, joint venture partners and other third parties upon whom the Company relies, 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, as compared with more traditional retail or manufacturing environments. If required, the Company is currently able to bid, price and 21 23 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 anticipated to be available by June 1999, with testing complete by the end of July 1999. Full conversion is anticipated to be completed by the start of fiscal year 2000, with the exception of the Spain office which is anticipated to be completed 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. 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 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 will be adopted by the Company in 1999. As discussed elsewhere in this Form 10-Q, the Company is undertaking a complete reorganization of its current operating units and administrative functions. Although management has not completed its review of SFAS No. 131 in light of the new organizational structure, management anticipates that under the new standard the number of its identifiable segments will increase over that currently being reported. In June 1998, the Financial Accounting Standards Board issued Statement of 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. On May 19, 1999, the Financial Accounting Standards Board voted to defer the implementation date of this statement, thereby making it effective for the Company's fiscal year 2001. Because of the Company's minimal use of derivatives, 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. 22 24 FLUOR CORPORATION CHANGES IN BACKLOG Three and Six Months Ended April 30, 1999 and 1998 UNAUDITED
For the Three Months Ended April 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Backlog - beginning of period $ 11,064.5 $ 14,018.1 New awards 1,621.1 2,776.6 Adjustments and cancellations, net 138.7 (73.3) Work Performed (2,601.8) (2,807.4) -------------------------- Backlog - end of period $ 10,222.5 $ 13,914.0 ==========================
For the Six Months Ended April 30, 1999 1998 - ---------------------------------------------------------------------------------------------- Backlog - beginning of period $ 12,645.3 $ 14,370.0 New awards 3,322.0 5,378.7 Adjustments and cancellations, net (252.8) (70.8) Work Performed (5,492.0) (5,763.9) -------------------------- Backlog - end of period $ 10,222.5 $ 13,914.0 ==========================
23 25 PART II: OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) Date of Meeting. The annual meeting of stockholders of Fluor Corporation was held on March 9, 1999 at The Hyatt Regency Hotel, Irvine, California. (b) Election of Directors - Voting Results Directors elected - Don L. Blankenship 64,447,796 FOR 1,245,870 VOTED TO WITHHOLD AUTHORITY Peter J. Fluor 64,507,431 FOR 1,186,235 VOTED TO WITHHOLD AUTHORITY Bobby R. Inman 64,401,930 FOR 1,291,736 VOTED TO WITHHOLD AUTHORITY James O. Rollans 64,440,910 FOR 1,252,756 VOTED TO WITHHOLD AUTHORITY Other directors continuing in office - Carroll A. Campbell, Jr. Philip J. Carroll, Jr. David P. Gardner Thomas L. Gossage Vilma S. Martinez Dean R. O'Hare Robin W. Renwick Martha R. Seger James C. Stein (c) Matters Voted Upon. Ratification of the appointment of Ernst & Young LLP as independent auditors for 1999: 65,124,670 FOR 288,700 AGAINST 280,296 ABSTAIN -0- BROKER NON-VOTE 24 26 Approval of Fluor Corporation 1999 Executive Performance Incentive Plan: 59,700,705 FOR 5,311,184 AGAINST 681,777 ABSTAIN -0- BROKER NON-VOTE (d) Terms of settlement between registrant and any other participant. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1 Fluor Corporation 1999 Executive Performance Incentive Plan. 27.1 Financial Data Schedule as of and for the six months ended April 30, 1999. (b) Reports on Form 8-K. None. 25 27 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: June 14, 1999 /s/ J. O. Rollans ------------- ---------------------------------------- J. O. Rollans, Senior Vice President and Chief Financial Officer /s/V. L. Prechtl ---------------------------------------- V. L. Prechtl, Vice President and Controller 26 28 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 10.1 Fluor Corporation 1999 Executive Performance Incentive Plan. 27.1 Financial Data Schedule as of and for the six months ended April 30, 1999.
EX-10.1 2 1999 EXECUTIVE PERFORMANCE INCENTIVE PLAN 1 EXHIBIT A FLUOR CORPORATION 1999 EXECUTIVE PERFORMANCE INCENTIVE PLAN SECTION 1. Purpose of Plan The purpose of this "Fluor Corporation 1999 Executive Performance Incentive Plan" ("Plan") of Fluor Corporation, a Delaware corporation, is to enable the Company, as defined in Section 2.2(a)(ii) hereof, to attract, retain and motivate its officers, management and other key personnel, and to further align the interests of such persons with those of the shareholders of the Company, by providing for or increasing their proprietary interest in the Company. SECTION 2. Administration of the Plan 2.1 Composition of Committee. The Plan shall be administered by the Organization and Compensation Committee of the Board of Directors, and/or by the Board of Directors or another committee of the Board of Directors of the Company, as appointed from time to time by the Board of Directors (any such administrative body, the "Committee"). The Board of Directors shall fill vacancies on, and from time to time may remove or add members to, the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. Notwithstanding the foregoing, with respect to any Award that is not intended to satisfy the conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), the Committee may appoint one or more separate committees (any such committee, a "Subcommittee") composed of one or more directors of the Company (who may but need not be members of the Committee) and may delegate to any such Subcommittee(s) the authority to grant Awards, as defined in Section 5.1 hereof, under the Plan to Employees, to determine all terms of such Awards, and/or to administer the Plan or any aspect of it. Any action by any such Subcommittee within the scope of such delegation shall be deemed for all purposes to have been taken by the Committee. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute agreements evidencing Awards made under this Plan or other documents entered into under this Plan on behalf of the Committee or the Company. 2.2 Powers of the Committee. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan with respect to the Awards over which such Committee has authority, including, without limitation, the following: (a) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; provided that, unless the Committee shall specify otherwise, for purposes of this Plan (i) the term "fair market value" shall mean, as of any date, the average of the highest price and the lowest price per share at which the Shares (as defined in Section 3.1 hereof) are sold in the regular way on the New York Stock Exchange or, if no Shares traded on the New York Stock Exchange on the date in question, then for the next preceding date for which Shares traded on the New York Stock Exchange; and (ii) the term "Company" shall mean Fluor Corporation and its subsidiaries and affiliates, unless the context otherwise requires. (b) to determine which persons are Eligible Employees (as defined in Section 4 hereof), to which of such Eligible Employees, if any, Awards shall be granted hereunder, to make Awards under the Plan and to determine the terms of such Awards and the timing of any such Awards; (c) to determine the number of Shares subject to Awards and the exercise or purchase price of such Shares; (d) to establish and verify the extent of satisfaction of any performance goals applicable to Awards; A-1 2 (e) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under this Plan (which need not be identical); (f) to determine whether, and the extent to which, adjustments are required pursuant to Section 11 hereof; (g) to interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and (h) to make all other determinations deemed necessary or advisable for the administration of the Plan. 2.3 Determinations of the Committee. All decisions, determinations and interpretations by the Committee or the Board regarding the Plan shall be final and binding on all Eligible Employees and Participants, as defined in Section 4 hereof. The Committee or the Board, as applicable, shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer of the Company or Eligible Employee and such attorneys, consultants and accountants as it may select. SECTION 3. Stock Subject to Plan 3.1 Aggregate Limits. Subject to adjustment as provided in Section 11, at any time, the aggregate number of shares of the Company's common stock, $0.625 par value ("Shares"), issued pursuant to all Awards (including all ISOs (as defined in Section 5.1 hereof)) granted under this Plan shall not exceed 3,700,000; provided that no more than 1,000,000 of such Shares may be issued pursuant to all Restricted Stock Awards, Incentive Awards, and Stock Units (other than Stock Units issued upon exercise of Options) granted under the Plan. The Shares subject to the Plan may be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares. 3.2 Code Section 162(m) Limits. The aggregate number of Shares subject to Options granted under this Plan during any calendar year to any one Eligible Employee shall not exceed 500,000. The aggregate number of Shares issued or issuable under any Restricted Stock Awards, Incentive Awards or Stock Unit Awards (other than Stock Units issued or issuable upon exercise of Options) granted under this Plan during any calendar year to any one Eligible Employee shall not exceed 75,000. Notwithstanding anything to the contrary in the Plan, the foregoing limitations shall be subject to adjustment under Section 11 only to the extent that such adjustment will not affect the status of any Award intended to qualify as "performance based compensation" under Code Section 162(m). 3.3 Issuance of Shares. For purposes of Section 3.1, the aggregate number of Shares issued under this Plan at any time shall equal only the number of Shares actually issued upon exercise or settlement of an Award and not returned to the Company upon cancellation, expiration or forfeiture of an Award or delivered (either actually or by attestation) in payment or satisfaction of the purchase price, exercise price or tax obligation of an Award. SECTION 4. Persons Eligible Under Plan Any person who is an (i) employee and who also is an officer, key employee or member of the Executive Management Team ("EMT"), (ii) prospective employee who is to be an officer, key employee or member of the EMT, (iii) consultant, or (iv) advisor of the Company (an "Eligible Employee") shall be eligible to be considered for the grant of Awards hereunder. For purposes of this Plan, the Chairman of the Board's status as an Employee shall be determined by the Board. For purposes of the administration of Awards, the term "Eligible Employee" shall also include a former Eligible Employee or any person (including any estate) who is a beneficiary of a former Eligible Employee. A "Participant" is any Eligible Employee to whom an Award has been made and any person (including any estate) to whom an Award has been assigned or transferred pursuant to Section 10.1. A-2 3 SECTION 5. Plan Awards 5.1 Award Types. The Committee, on behalf of the Company, is authorized under this Plan to enter into certain types of arrangements with Eligible Employees and to confer certain benefits on them. The following such arrangements or benefits are authorized under the Plan if their terms and conditions are not inconsistent with the provisions of the Plan: Stock Options, Restricted Stock, Incentive Awards and Stock Units. Such arrangements and benefits are sometimes referred to herein as "Awards." The authorized types of arrangements and benefits for which Awards may be granted are defined as follows: Stock Option Awards: A Stock Option is a right granted under Section 6 to purchase a number of Shares at such exercise price, at such times, and on such other terms and conditions as are specified in or determined pursuant to the document(s) evidencing the Award (the "Option Agreement"). Options intended to qualify as Incentive Stock Options ("ISOs") pursuant to Code Section 422 and Options which are not intended to qualify as ISOs ("Non-qualified Options") may be granted under Section 6 as the Committee in its sole discretion shall determine. Restricted Stock Awards: Restricted Stock is an award of Shares made under Section 7, the grant, issuance, retention and/or vesting of which is subject to such performance and other conditions as are expressed in the document(s) evidencing the Award (the "Restricted Stock Agreement"). Incentive Awards: An Incentive Award is a bonus opportunity awarded under Section 8 pursuant to which a Participant may become entitled to receive an amount (which may be payable in cash, Shares or other property) based on satisfaction of such performance criteria as are specified in the document(s) evidencing the Award (the "Incentive Bonus Agreement"). Stock Unit Awards: A Stock Unit Award is an award of a right to receive the fair market value of one share of Common Stock made under Section 9, the grant, issuance, retention and/or vesting of which is subject to such performance and other conditions as are expressed in the document(s) evidencing the Award (the "Stock Unit Agreement"). 5.2 Grants of Awards. An Award may consist of one such arrangement or benefit or two or more of them in tandem or in the alternative. SECTION 6. Stock Option Awards The Committee may grant an Option or provide for the grant of an Option, either from time-to-time in the discretion of the Committee or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance goals, the satisfaction of an event or condition within the control of the recipient of the Award, within the control of others or not within any person's control. 6.1 Option Agreement. Each Option Agreement shall contain provisions regarding (a) the number of Shares which may be issued upon exercise of the Option, (b) the purchase price of the Shares and the means of payment for the Shares, (c) the term of the Option, (d) such terms and conditions of exercisability as may be determined from time to time by the Committee, (e) restrictions on the transfer of the Option and forfeiture provisions, and (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. Option Agreements evidencing ISOs shall contain such terms and conditions as may be necessary to comply with the applicable provisions of Section 422 of the Code. 6.2 Option Price. The purchase price per Share of the Shares subject to each Option granted under the Plan shall equal or exceed 100% of the fair market value of such Stock on the date the Option is granted, except that (i) the Committee may specifically provide that the exercise price of an Option may be higher or lower in the case of an Option granted to employees of a company acquired by the Company in assumption and substitution of options held by such employees at the time such company is acquired, and (ii) in the event an Eligible Employee is required to pay or forego the receipt of any cash amount in consideration of receipt of an Option, the exercise price plus such cash amount shall equal or exceed 100% of the fair market value of such Stock on the date the Option is granted. A-3 4 6.3 Option Term. The "Term" of each Option granted under the Plan, including any ISOs, shall not exceed ten (10) years from the date of its grant. 6.4 Option Vesting. Options granted under the Plan shall be exercisable at such time and in such installments during the period prior to the expiration of the Option's Term as determined by the Committee in its sole discretion. The Committee shall have the right to make the timing of the ability to exercise any Option granted under the Plan subject to such performance requirements as deemed appropriate by the Committee. At any time after the grant of an Option the Committee may, in its sole discretion, reduce or eliminate any restrictions surrounding any Participant's right to exercise all or part of the Option, except that no Option shall first become exercisable within one (1) year from its date of grant, other than upon death, disability, a Change of Control (as defined in Section 12.2 hereof) or upon satisfaction of such performance requirements as deemed appropriate by the Committee. 6.5 Option Exercise. (a) Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional Shares and the Committee may require, by the terms of the Option Agreement, a partial exercise to include a minimum number of Shares. (b) Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery to the representative of the Company designated for such purpose by the Committee all of the following: (i) notice of exercise in such form as the Committee authorizes specifying the number of Shares to be purchased by the Participant, (ii) payment or provision for payment of the exercise price for such number of Shares, (iii) such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal, state or foreign securities laws or regulations, (iv) in the event that the Option shall be exercised pursuant to Section 10.1 by any person or persons other than the Eligible Employee, appropriate proof of the right of such person or persons to exercise the Option, and (v) such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to provide for the tax withholding pursuant to Section 13. Unless provided otherwise by the Committee, no Participant shall have any right as a shareholder with respect to any Shares purchased pursuant to any Option until the registration of Shares in the name of such person, and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such Shares are so registered. (c) Payment of Exercise Price. To the extent authorized by the Committee, the exercise price of an Option may be paid in the form of one of more of the following, either through the terms of the Option Agreement or at the time of exercise of an Option: (i) cash or certified or cashiers' check, (ii) shares of capital stock of the Company that have been held by the Participant for such period of time as the Committee may specify, (iii) other property deemed acceptable by the Committee, (iv) a reduction in the number of Shares or other property otherwise issuable pursuant to such Option, (v) a promissory note of or other commitment to pay by the Participant or of a third party, the terms and conditions of which shall be determined by the Committee, or (vi) any combination of (i) through (v). SECTION 7. Restricted Stock Awards Restricted Stock consists of an award of Shares, the grant, issuance, retention and/or vesting of which shall be subject to such performance conditions and to such further terms and conditions as the Committee deems appropriate. 7.1 Restricted Stock Award. Each Restricted Stock Award shall reflect, to the extent applicable (a) the number of Shares subject to such Award or a formula for determining such, (b) the time or times at which Shares shall be granted or issued and/or become retainable or vested, and the conditions or restrictions on such Shares, (c) the performance criteria and level of achievement versus these criteria which shall determine the number of Shares granted, issued, retainable and/or vested, (d) the period as to which performance shall be measured for determining achievement of performance, (e) forfeiture provisions, and A-4 5 (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. 7.2 Restrictions and Performance Criteria. The grant, issuance, retention and/or vesting of each Restricted Stock Award may be subject to such performance criteria and level of achievement versus these criteria as the Committee shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Participant; provided, however, that no Restricted Stock Award shall first vest within one year from its date of grant, other than upon death, disability, a Change of Control (as defined in Section 12.2 hereof) or upon satisfaction of such performance requirements as deemed appropriate by the Committee. Notwithstanding anything to the contrary herein, the performance criteria for any Restricted Stock Award that is intended by the Committee to satisfy the requirements for "performance-based compensation" under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 10.2 hereof) selected by the Committee. 7.3 Timing and Form of Award. The Committee shall determine the timing of award of any Restricted Stock Award. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the award or vesting of any Restricted Stock to be deferred to a specified date or event. The Committee may provide for a Participant to have the option for his or her Restricted Stock, or such portion thereof as the Committee may specify, to be granted in whole or in part in Stock Units. 7.4 Discretionary Adjustments. Notwithstanding satisfaction of any completion of service or performance goals, the number of Shares granted, issued, retainable and/or vested under a Restricted Stock Award on account of either financial performance or personal performance evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine. SECTION 8. Incentive Awards Each Incentive Award will confer upon the Eligible Employee the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year. 8.1 Incentive Award. Each Incentive Award shall contain provisions regarding (a) the target and maximum amount payable to the Participant as an Incentive Award, (b) the performance criteria and level of achievement versus these criteria which shall determine the amount of such payment, (c) the period as to which performance shall be measured for establishing the amount of any payment, (d) the timing of any payment earned by virtue of performance, (e) restrictions on the alienation or transfer of the Incentive Award prior to actual payment, (f) forfeiture provisions, and (g) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. In establishing the provisions of Incentive Awards, the Committee may refer to categories of such Awards as parts of "Programs" or "Plans", which names will not affect the applicability of this Plan. The maximum amount payable as an Incentive Award may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of an Incentive Award granted under this Plan for any fiscal year to any Participant that is intended to satisfy the requirements for "performance based compensation" under Code Section 162(m) shall not exceed Three million dollars ($3,000,000). 8.2 Performance Criteria. The Committee shall establish the performance criteria and level of achievement versus these criteria which shall determine the target and the minimum and maximum amount payable under an Incentive Award, which criteria may be based on financial performance and/or personal performance evaluations. The Committee may specify the percentage of the target Incentive Award that is intended to satisfy the requirements for "performance-based compensation" under Code Section 162(m). Notwithstanding anything to the contrary herein, the performance criteria for any portion of an Incentive Award that is intended by the Committee to satisfy the requirements for "performance-based compensation" under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as A-5 6 defined in Section 10.2 hereof) selected by the Committee and specified at the time required under Code Section 162(m). 8.3 Timing and Form of Payment. The Committee shall determine the timing of payment of any Incentive Award. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the payment of any Incentive Award to be deferred to a specified date or event. The Committee may specify the form of payment of Incentive Awards, which may be cash, shares or other property, or may provide for a Participant to have the option for his or her Incentive Award, or such portion thereof as the Committee may specify, to be paid in whole or in part in Shares or Stock Units. 8.4 Discretionary Adjustments. Notwithstanding satisfaction of any performance goals, the amount paid under an Incentive Award on account of either financial performance or personal performance evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine. SECTION 9. Stock Units 9.1 Stock Units. A "Stock Unit" is a bookkeeping entry representing an amount equivalent to the fair market value of one share of Common Stock, also sometimes referred to as a "restricted unit" or "shadow stock". Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Committee. 9.2 Stock Unit Awards. Each Stock Unit Award shall reflect, to the extent applicable (a) the number of Stock Units subject to such Award or a formula for determining such, (b) the time or times at which Stock Units shall be granted or issued and/or become retainable or vested, and the conditions or restrictions on such Stock Units, (c) the performance criteria and level of achievement versus these criteria which shall determine the number of Stock Units granted, issued, retainable and/or vested, (d) the period as to which performance shall be measured for determining achievement of performance, (e) forfeiture provisions, and (f) such further terms and conditions, in each case not inconsistent with the Plan as may be determined from time to time by the Committee. Stock Units may also be issued upon exercise of Options, may be granted in payment and satisfaction of Incentive Awards and may be issued in lieu of Restricted Stock or any other Award that the Committee elects to be paid in the form of Stock Units. 9.3 Performance Criteria. The grant, issuance, retention and or vesting of each Stock Unit may be subject to such performance criteria and level of achievement versus these criteria as the Committee shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Participant; provided, however, that no Stock Unit shall first vest within one (1) year from its date of grant, other than upon death, disability, a Change of Control (as defined in Section 12.2 hereof) or upon satisfaction of such performance requirements as deemed appropriate by the Committee. Notwithstanding anything to the contrary herein, the performance criteria for any Stock Unit that is intended by the Committee to satisfy the requirements for "performance-based compensation" under Code Section 162(m) shall be a measure based on one or more Qualifying Performance Criteria (as defined in Section 10.2 hereof) selected by the Committee and specified at the time the Stock Unit is granted. 9.4 Timing and Form of Award. The Committee shall determine the timing of award of any Stock Unit. The Committee may provide for or, subject to such terms and conditions as the Committee may specify, may permit a Participant to elect for the award or vesting of any Stock Unit to be deferred to a specified date or event. The Committee may provide for a Participant to have the option for his or her Stock Unit, or such portion thereof as the Committee may specify, to be granted in whole or in part in Shares. 9.5 Settlement of Stock Units. The Committee may provide for Stock Units to be settled in cash or Shares (at the election of the Company or the Participant, as specified by the Committee) and to be made at such other times as it determines appropriate or as it permits a Participant to choose. The amount of cash or Shares, or other settlement medium, to be so distributed may be increased by an interest factor or by dividend A-6 7 equivalents, as the case may be, which may be valued as if reinvested in Shares. Until a Stock Unit is settled, the number of Shares represented by a Stock Unit shall be subject to adjustment pursuant to Section 11. 9.6 Discretionary Adjustments. Notwithstanding satisfaction of any completion of service or performance goals, the number of Stock Units granted, issued, retainable and/or vested under a Stock Unit Award on account of either financial performance or personal performance evaluations may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine. SECTION 10. Other Provisions Applicable to Awards 10.1 Transferability. Unless the agreement evidencing an Award (or an amendment thereto authorized by the Committee) expressly states that it is transferable as provided hereunder, no Award granted under the Plan, nor any interest in such Award, may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner, other than by will or the laws of descent and distribution, prior to the vesting or lapse of any and all restrictions applicable to any Shares issued under an Award. The Committee may in its sole discretion grant an Award or amend an outstanding Award to provide that the Award is transferable or assignable to a member or members of the Eligible Employee's "immediate family", as such term is defined under Exchange Act Rule 16a-1(e), or to a trust for the benefit solely of a member or members of the Eligible Employee's immediate family, or to a partnership or other entity whose only owners are members of the Eligible Employee's family, provided that following any such transfer or assignment the Award will remain subject to substantially the same terms applicable to the Award while held by the Eligible Employee, as modified as the Committee in its sole discretion shall determine appropriate, and the Participant shall execute an agreement agreeing to be bound by such terms. 10.2 Qualifying Performance Criteria. For purposes of this Plan, the term "Qualifying Performance Criteria" shall mean any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, subsidiary or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years' results or to a designated comparison group, in each case as specified by the Committee in the Award: (a) cash flow, (b) earnings (including gross margin, earnings before interest and taxes ("EBIT"), earnings before taxes ("EBT"), and net earnings), (c) earnings per share, (d) growth in earnings or earnings per share, (e) stock price, (f) return on equity or average stockholders' equity, (g) total stockholder return, (h) return on capital, (i) return on assets or net assets, (j) return on investment, (k) revenue, (l) income or net income, (m) operating income or net operating income, (n) operating profit or net operating profit, (o) operating margin, (p) return on operating revenue, (q) market share, (r) contract awards or backlog, (s) overhead or other expense reduction, (t) growth in stockholder value relative to the two-year moving average of the S&P 500 Index, (u) growth in stockholder value relative to the two-year moving average of the Dow Jones Heavy Construction Index, (v) credit rating, (w) strategic plan development and implementation, (x) succession plan development and implementation, (y) retention of executive talent, (z) improvement in workforce diversity, (aa) return on average stockholders' equity relative to the Ten Year Treasury Yield (as hereinafter defined), (bb) improvement in safety records, (cc) capital resource management plan development and implementation, (dd) improved internal financial controls plan development and implementation, (ee) corporate tax savings, (ff) corporate cost of capital reduction, (gg) investor relations program development and implementation, (hh) corporate relations program development and implementation, (ii) executive performance plan development and implementation, and (jj) tax provision rate for financial statement purposes. The Committee may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs, and (v) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to stockholders for the applicable year. The term "Ten Year Treasury Yield" shall mean, for any fiscal period, the daily average A-7 8 percent per annum yield for U.S. Government Securities -- 10 year Treasury constant maturities, as published in the Federal Reserve statistical release or any successor publication. Prior to the payment of any compensation under an Award intended to qualify as "performance-based compensation" under Code Section 162(m) the Committee shall certify the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Company's Common Stock). 10.3 Dividends. Unless otherwise provided by the Committee, no adjustment shall be made in Shares issuable under Awards on account of cash dividends which may be paid or other rights which may be issued to the holders of Shares prior to their issuance under any Award. The Committee shall specify whether dividends or dividend equivalent amounts shall be paid to any Participant with respect to the Shares subject to any Award that have not vested or been issued or that are subject to any restrictions or conditions on the record date for dividends. 10.4 Agreements Evidencing Awards. The Committee shall, subject to applicable law, determine the date an Award is deemed to be granted, which for purposes of this Plan shall not be affected by the fact that an Award is contingent on subsequent stockholder approval of the Plan. The Committee or, except to the extent prohibited under applicable law, its delegate(s) may establish the terms of agreements evidencing Awards under this Plan and may, but need not, require as a condition to any such agreement's effectiveness that such agreement be executed by the Participant and that such Participant agree to such further terms and conditions as specified in such agreement. The grant of an Award under this Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in this Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the Agreement evidencing such Award. 10.5 Tandem Stock or Cash Rights. Either at the time an Award is granted or by subsequent action, the Committee may, but need not, provide that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash or a combination thereof, the amount of which is determined by reference to the value of the Award; provided, however, that the number of such rights granted under any Award shall not exceed the per Eligible Employee share limitation for such Award as set forth in Section 3.2. 10.6 Financing. The Committee may in its discretion provide financing to a Participant in a principal amount sufficient to pay the purchase price of any Award and/or to pay the amount of taxes required by law to be withheld with respect to any Award. Any such loan shall be subject to all applicable legal requirements and restrictions pertinent thereto, including Regulation G promulgated by the Federal Reserve Board. The grant of an Award shall in no way obligate the Company or the Committee to provide any financing whatsoever in connection therewith. SECTION 11. Changes in Capital Structure If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of shares or securities, or if cash, property or shares or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split, spin-off or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Committee may make appropriate and proportionate adjustments in (i) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Awards theretofore granted under this Plan and the exercise or settlement price of such Awards, provided, however, that any such adjustment shall be made in such a manner that will not affect the status of any Award intended to qualify as an ISO under Code Section 422 or as "performance based compensation" under Code Section 162(m), and (ii) the maximum number and type of shares or other securities that may be issued pursuant to such Awards thereafter granted under this Plan. A-8 9 SECTION 12. Change of Control 12.1 Effect of Change of Control. The Committee may through the terms of the Award or otherwise provide that any or all of the following shall occur, either immediately upon the Change of Control or a Change of Control Transaction, or upon termination of the Eligible Employee's employment within twenty-four (24) months following a Change of Control or a Change of Control Transaction: (a) in the case of an Option, the Participant's ability to exercise any portion of the Option not previously exercisable, (b) in the case of an Incentive Award, the right to receive a payment equal to the target amount payable or, if greater, a payment based on performance through a date determined by the Committee prior to the Change of Control, and (c) in the case of Shares issued in payment of any Incentive Award, and/or in the case of Restricted Stock or Stock Units, the lapse and expiration of any conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award. The Committee also may, through the terms of the Award or otherwise, provide for an absolute or conditional exercise, payment or lapse of conditions or restrictions on an Award which shall only be effective if, upon the announcement of a Change of Control Transaction, no provision is made in such Change of Control Transaction for the exercise, payment or lapse of conditions or restrictions on the Award, or other procedure whereby the Participant may realize the full benefit of the Award. 12.2 Definitions. Unless the Committee or the Board shall provide otherwise, "Change of Control" shall mean an occurrence of any of the following events (a) a third person, including a "group" as defined in Section 13(d)(3) of the Exchange Act, acquires shares of the Company having twenty-five percent or more of the total number of votes that may be cast for the election of directors of the Company, (b) as the result of any cash tender or exchange offer, merger or other business combination, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Company before the Transaction shall cease to constitute a majority of the Board of the Company or any successor to the Company; or (c) such other events as the Committee or the Board from time to time may specify. "Change of Control Transaction" shall include any tender offer, offer, exchange offer, solicitation, merger, consolidation, reorganization or other transaction which is intended to or reasonably expected to result in a Change of Control. SECTION 13. Taxes 13.1 Withholding Requirements. The Committee may make such provisions or impose such conditions as it may deem appropriate for the withholding or payment by the Employee or Participant, as appropriate, of any taxes which it determines are required in connection with any Awards granted under this Plan, and a Participant's rights in any Award are subject to satisfaction of such conditions. 13.2 Payment of Withholding Taxes. Notwithstanding the terms of Section 13.1 hereof, the Committee may provide in the agreement evidencing an Award or otherwise that all or any portion of the taxes required to be withheld by the Company or, if permitted by the Committee, desired to be paid by the Participant, in connection with the exercise of a Non-qualified Option or the exercise, vesting, settlement or transfer of any other Award shall be paid or, at the election of the Participant, may be paid by the Company withholding shares of the Company's capital stock otherwise issuable or subject to such Award, or by the Participant delivering previously owned shares of the Company's capital stock, in each case having a fair market value equal to the amount required or elected to be withheld or paid. Any such elections are subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee. SECTION 14. Amendments or Termination The Board may amend, alter or discontinue the Plan or any agreement evidencing an Award made under the Plan, but no such amendment shall, without the approval of the shareholders of the Company: (a) materially increase the maximum number of shares of Common Stock for which Awards may be granted under the Plan; (b) reduce the price at which Options may be granted below the price provided for in Section 6.2; A-9 10 (c) reduce the exercise price of outstanding Options; (d) after the date of a Change of Control, impair the rights of any Award holder, without such holder's consent, under any Award granted prior to the date of any Change of Control; (e) extend the term of the Plan; or (f) change the class of persons eligible to be Participants. SECTION 15. Compliance With Other Laws and Regulations The Plan, the grant and exercise of Awards thereunder, and the obligation of the Company to sell, issue or deliver Shares under such Awards, shall be subject to all applicable federal, state and foreign laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participant's name or deliver any Shares prior to the completion of any registration or qualification of such Shares under any federal, state or foreign law or any ruling or regulation of any government body which the Committee shall, in its sole discretion, determine to be necessary or advisable. This Plan is intended to constitute an unfunded arrangement for a select group of management or other key employees. No Option shall be exercisable unless a registration statement with respect to the Option is effective or the Company has determined that such registration is unnecessary. Unless the Awards and Shares covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person receiving an Award and/or Shares pursuant to any Award may be required by the Company to give a representation in writing that such person is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. SECTION 16. Option Grants by Subsidiaries In the case of a grant of an Option to any Eligible Employee employed by a subsidiary or affiliate, such grant may, if the Committee so directs, be implemented by the Company issuing any subject Shares to the subsidiary or affiliate, for such lawful consideration as the Committee may determine, upon the condition or understanding that the subsidiary or affiliate will transfer the Shares to the optionholder in accordance with the terms of the Option specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Option may be issued by and in the name of the subsidiary or affiliate and shall be deemed granted on such date as the Committee shall determine. SECTION 17. No Right to Company Employment Nothing in this Plan or as a result of any Award granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment at any time. The Award agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence. SECTION 18. Effectiveness and Expiration of Plan The Plan shall be effective on the date the Board adopts the Plan. All Awards granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the shareholders prior to the first anniversary date of the effective date of the Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company's shareholders or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the shareholders of the Company is not forthcoming, all Awards previously granted under this Plan shall be void. No Stock Option Award, Restricted Stock Award or Incentive Award shall be granted pursuant to the Plan more than ten (10) years after the effective date of the Plan. A-10 11 SECTION 19. Non-Exclusivity of the Plan Neither the adoption of the Plan by the Board nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as it or they may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. SECTION 20. Governing Law This Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. The Committee may provide that any dispute as to any Award shall be presented and determined in such forum as the Committee may specify, including through binding arbitration. Any reference in this Plan or in the agreement evidencing any Award to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability. A-11 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT APRIL 30, 1999 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS OCT-31-1999 APR-30-1999 207,871 0 945,363 0 248,201 2,221,186 3,386,577 1,207,501 5,013,780 2,493,141 300,002 0 0 47,373 1,433,332 5,013,780 0 6,475,372 0 6,292,416 0 136,500 26,012 10,376 32,190 (21,814) 0 0 0 (21,814) (0.29) (0.29)
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